Petrofac Annual report and accounts 2009 accounts and report Annual Petrofac

Petrofac Services Limited Annual report 117 Jermyn Street and accounts 2009 London SW1Y 6HH United Kingdom

T +44 20 7811 4900 F +44 20 7811 4901 www.petrofac.com

The difference is… 2 Petrofac Annual report and accounts 2009 Today, the power of Petrofac’s service offering has never been greater. Although the scale of our business has increased significantly in recent years, our approach remains constant. We continue to follow the principles that have driven our business from the earliest days: diligence in execution, customer focus and passionate attention to the smallest detail. Our intent is to further improve our business performance, and we remain resolutely focused on delivering optimum returns for …in the detail all of our stakeholders. 2 3 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Contents

2 Financial highlights Overview 4 At a glance 6 Structure Financial highlights World-class results 8 Insight makes the difference 10 Making a difference in performance 12 Think different, act different, 05 06 07 08 09 This has been another excellent year for be different Revenue 14 A fresh perspective, a different

0 Petrofac. In a challenging year for our US$3,655m approach 3,655 33 16 Integrity, support, responsibility: 3, industry we have delivered another strong the difference is demonstrable 0

44 financial performance with growth in net Business review 2, 4 18 Chairman’s statement

86 profit for the group of over 33% on revenue 5

1, 22 Interview with the 48 Group Chief Executive 1, up by 10% at US$3.65 billion. 26 Operating review +10 % US$millions Following substantial new contract 50 Financial review 05 06 07 08 09 EBITDA awards in the year, our record order intake US$559.0m 559.0 of US$7.3 billion doubled our backlog to US$8.1 billion giving us outstanding 419.0 revenue visibility for the current year 53 Corporate social responsibility responsibility  Corporate social

301.3 and beyond. 198.3

US$millions We remain committed to our aim of +33% 115.6 3 05 06 07 08 09 becoming the leading provider of facilities Net profit US$353.6m solutions to the oil & gas industry, and aim 353.6 to achieve this by: 265.0 64 Directors’ information Governance 66 Senior management team 188.7 69 Corporate governance report 76 Directors’ remuneration report 120.3 ■ Maintaining and improving on ■ Expanding our established 87 Statement of Directors’ US$millions % 75.4 +33 high safety standards service offering into new responsibilities 05 06 07 08 09 countries and regions EPS ■ Leveraging customer relationships Earnings per share (diluted) by providing a range of services ■ Assisting customers in achieving 103.19 cents per share 103.19 across the life cycle of an asset their local content goals by accessing in-country resources Financial statements 77.11 ■ Generating predictable, long-term and improving the competence 88 Independent auditors’ report returns from a diversified portfolio and technical skills of local 89 Consolidated income statement

54.61 of investments, leveraging the workforces 90 Consolidated statement of group’s service capabilities in comprehensive income 1 34.87 order to understand and manage ■ Improving revenue and earnings 91 Consolidated statement of Cents per share +34% 22.4 better the risks involved stability through a diversified and financial position 05 06 07 08 09 complementary business model 92 Consolidated cash flow statement Backlog ■ Focusing on regions with major 93 Consolidated statement of changes in equity US$8,071m hydrocarbon reserves where ■ Attracting and retaining 8,071 94 Notes to the consolidated significant capital and operational specialists and key personnel financial statements expenditures are expected 1 3 0 Independent auditors’ report ■ Identifying, acquiring, integrating (Petrofac Limited) and developing complementary 1 3 1 Company financial statements,

4,441 businesses where appropriate Petrofac Limited 4,173 3,997 1 4 3 Oil & gas reserves (unaudited) 3,244 1 4 4 Shareholder information +102% US$millions Five year summary1 2009 2008 2007 2006 2005 Information not subject to audit Restated Restated Revenues2 3,655,426 3,329,536 2,440,251 1,863,906 1,485,472 EBITDA2 558,966 418,952 301,259 198,349 115,634 Profit for the year2,3 353,603 264,989 188,716 120,332 75,397 Diluted earnings per share (cents)2 103.19 77.11 54.61 34.87 22.41 Total assets 3,600,571 2,269,821 1,748,007 1,401,847 986,650 Total equity 906,755 559,031 522,970 324,904 195,127 Average number of employees2 11,628 10,383 9,027 7,482 6,598 Backlog (US$ millions) 8,071 3,997 4,441 4,173 3,244 1 In US$’000 unless otherwise stated. 2 On continuing operations. 3 Attributable to Petrofac Limited shareholders. 4 5 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 At a glance Overview

Engineering & Offshore Engineering, Energy At a glance Construction Engineering & Training Services Developments Operations and Production Solutions Petrofac is a provider of integrated Employee Employee Employee Employee facilities solutions to the international numbers: numbers: numbers: numbers: oil & gas industries, with a record 4,200 4,100 2,900 500 of delivering the best results for our shareholders. At the same time, we focus on results for customers, striving for the highest levels of performance, often in Revenue Revenue Revenue Revenue US$2,509m US$626.7m US$349.7m US$248.7m challenging environments, but in 2008: US$1,994m 2008: US$776.6m 2008: US$510.4m 2008: US$153.4m geographic regions we know well;

Percentage of Percentage of Percentage of Percentage of results for our people, who see their group revenue group revenue group revenue group revenue skill and endeavour matched by our 67% 17% 9% 7% commitment to safety and support; and results for the communities +26% -19 % -31% +62% Net profit Net profit Net profit Net profit where we work, through an US$265.1m US$12.8m US$32.4m US$46.2m appreciation of cultural diversity 2008: US$206.3m 2008: US$16.4m 2008: US$33.1m 2008: US$21.9m and concern for the environment. Percentage of Percentage of Percentage of Percentage of group profit group profit group profit group profit We have some 11,700 employees 74% 4% 9% 13% operating out of five strategically located operational centres, in +28 % -22% -2% +111% This segment includes Engineering This segment is solely comprised of This segment comprises: Engineering This segment is solely comprised Aberdeen, Sharjah, Woking, Chennai & Construction and Engineering & Offshore Engineering & Operations. Services, Training Services and of Energy Developments. Construction Ventures. Production Solutions. and Mumbai and a further 19 offices 2009 highlights 2009 highlights 2009 highlights Awarded two new contracts in the 2009 highlights ■ commencement of production from worldwide. A record order intake during the year UK North Sea: Engineering Services: both the Don Southwest and West Don of US$6.3 billion including: ■ a three-year engineering and ■ awarded a three-year consultancy fields in the UK North Sea, achieved in ■ US$2.3 billion lump-sum EPC project construction contract with Apache contract with Qatar Petroleum (QP) less than a year from field development with Abu Dhabi Company for Onshore worth circa £75 million ■ added around 300 people to our programme approval Oil Operations (ADCO) ■ a five-year maintenance contract Mumbai and Chennai offices ■ excellent production from the Cendor ■ US$2.2 billion EPC project for the El Merk with BP worth circa £100 million Training Services: field, offshore Malaysia with 14,400 central processing facility in Algeria Extended its Duty Holder contract with ■ awarded a US$5 million three-year TMS barrels per day (bpd) of oil achieved ■ Petrofac Emirates awarded first contract contract with BP in the UK North Sea over the year and production uptime with GASCO in Abu Dhabi Venture Production to May 2011 ■ manages 14 training facilities in six of over 99% ■ the award of Petrofac’s first project in Through a focus on asset integrity, countries training around 50,000 Saudi Arabia ■ in Tunisia, the Chergui gas plant eliminated a number of legacy Health & delegates worldwide each year ■ a US$100 million FEED study for Safety Executive Enforcement Notices produced an average of 26.5 million Turkmengaz which contemplates moving from mature assets in the UK, in Production Solutions: standard cubic feet per day (mmscfd) into a second phase in 2010 which would conjunction with the asset owners ■ the service operator contract with Dubai of gas during the year involve a lump-sum EPC contract with Petroleum exceeded production targets ■ the acquisition of the floating a not to exceed value of US$4 billion Enhanced mechanical services capability agreed with the customer production facility, the AHOO1, from through a JV with Zamil Group in Saudi ■ consultancy business Caltec awarded Initial progress on these awards has been Hess and Endeavour Energy UK. Arabia and through the acquisition of the Offshore Contractors Association’s in line with expectations and in addition Now renamed the FPF1, options for Challenge Award for Technology and we have made good progress across our Scotvalve Services redeployment are under consideration Innovation for its Wellcom system broader portfolio of projects in Syria, Egypt, Tunisia, Oman, Kuwait and Algeria 6 7 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Structure Overview Our services

Although our performance is reported through four business segments, beneath these segments, seven business units ensure we endeavour to meet our customers’ needs across the full life cycle of oil & gas assets, from design to decommissioning.

Engineering & Construction Offshore Engineering, Training Services Energy Engineering & and Production Solutions Developments Operations

Engineering & Engineering & Offshore Engineering Training Production Energy Construction Construction Engineering & Services Services Solutions Developments Ventures Operations

Based in Sharjah UAE, Engineering As part of our value offering to Our engineering & construction Drawing on extensive engineering, Training Services makes Production Solutions offers Where we can leverage our service & Construction provides tailored customers, Engineering & teams deliver excellence at all construction, procurement and a positive difference to the safety customers single-point access to a capabilities to mitigate risks and and integrated engineering, Construction Ventures has stages of greenfield and brownfield operations experience, our and efficiency of international wide range of services to help them reduce costs, Energy Developments procurement and construction established strategic companies offshore projects. Through the Engineering Services business unit workforces through the provision improve production, profitability, co-invests alongside the group’s (EPC) project delivery solutions and joint ventures with provision of operations management combines practical experience with of competence-led training operational efficiency, asset partners in oil & gas upstream on a lump-sum turnkey basis complementary organisations in we deliver production, maintenance the latest advances in technical services, consultancy and integrity and the recovery of developments and energy (LSTK) through a variety of order to drive growth in new services and expertise to extend innovation to provide a range of managed solutions which are marginal reserves. In addition to the infrastructure to create additional contracting models. markets, while providing the same field life. services including consultancy, designed to increase competence service operator contract with value for the group. capability and expertise as conceptual engineering, front end and minimise risk. Dubai Petroleum, the business unit Key capabilities Engineering & Construction. Key capabilities engineering and design (FEED) and comprises four specialist service Key capabilities ■ detailed design and engineering ■ facilities management both on project management on a Key capabilities providers: Eclipse, Caltec, SPD ■ technical, operational, ■ procurement including inspection Key capabilities and offshore – including the Duty reimbursable basis. ■ competence-led training services and Plant Asset Management. commercial and asset and logistics of all project ■ Petrofac Emirates, a joint venture Holder service offering in both safety and technical management skills, as well as materials and equipment company with Mubadala ■ project management Key capabilities disciplines from training centres Key capabilities access to the strong financial ■ pre-fabrication and onsite Petroleum Services LLC, is ■ engineering & construction for ■ comprehensive and independent worldwide or from customer ■ production performance resources of the Petrofac group construction focused on becoming an integral offshore projects field development planning facilities improvement, from the reservoir ■ identification and development ■ health, safety, security and part of Abu Dhabi’s growing and ■ maintenance management and ■ specialist engineering ■ consultancy services to identify to the delivery point of brownfield and greenfield environmental management in diversifying energy sector, while support services consultancy or assess competency gaps or ■ leading-edge drilling and well opportunities in mid and line with international and national supplying services throughout the ■ mechanical services and ■ conceptual engineering risks within an organisation engineering downstream infrastructure regulations UAE and internationally metering ■ front end engineering and design ■ outsourced tailored management ■ optimised reservoir management ■ experience includes oil & gas ■ comprehensive quality assurance ■ building a significant presence in ■ supply of highly competent and ■ detailed engineering and solutions including Training and field (re)development processing facilities, pipelines, and control Saudi Arabia through Petrofac experienced personnel procurement services Management Solutions, planning storage, refineries and refinery ■ project management Saudi Arabia. The Kingdom is the ■ HSE services and full project Competence Management ■ asset integrity management units, terminals and LNG ■ commissioning and initial largest market for EPC projects management and delivery Solutions and Emergency ■ management consultancy to regasification operations worldwide and forms an integral capabilities Response development capability develop and deliver the plan ■ pursues opportunities in part of our growth plans ■ creation of nationalised ■ development and delivery of discovered, but undeveloped, ■ leveraging our gas processing workforces pumping and separation mature oil & gas fields experience and expertise through technologies for new and retrofit ■ services help to manage and Petrofac IKPT, a joint venture with optimisation of production mitigate the many risks that are Indonesia’s Inti Karya Persada involved in any major project Tehnik, a company with a proven track record in LNG liquefaction plants 8 9 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Overview

We continue to maintain our focus on the geographic areas where we have been Insight makes strongest. It is these regions that we know best and where we have real insight based on long-term relationships, cultural empathy and mutual respect. Our understanding of the the difference business environment and familiarity with our customers’ needs have helped us develop a proven and extensive track record.

Understanding We’re as local as Developing local our customers our customers workforces, for ourselves and our The business relationships between We believe there is no substitute our people and our customers are firm, for local knowledge. We have 11,700 customers long-term and based on mutual respect professionals based at five strategically and understanding. Many of our people, based operational centres, in Aberdeen, We employ more than 60 nationalities from on-site operatives to Board Directors, Sharjah, Woking, Chennai and Mumbai. across the globe and invest in our own have grown up as near-neighbours to These are supported by a further talent management and development our customers, working alongside each 19 offices worldwide, giving us a programmes. In addition, we also direct other for many years. We share common presence where our customers value significant resources into raising the heritages and cultures, pasts and futures, it most: on the ground, close to their capability and working practices of the values and aspirations. key locations. indigenous workforces where we operate. Our training programmes, which focus on all aspects of health & safety and technical competence development, bring valuable work-based skills to local communities. 10 11 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Overview Ours is a results business: performance is everything, whether in terms of timescales Making a or budgets, safety records or barrels of oil. Underpinned by our core values we are steadfast in our approach and focused on difference in delivering the best service for our customers. performance

Relationships matter

Our strength is visible in the way we can bring intelligent solutions to a variety of engineering challenges but also in our investment in, and long-term support of, customer relationships. This is essentially a people-oriented industry where personal dedication to the customer can make the difference.

Dedication to delivery

Only meticulous planning will lay the foundations for successful project execution. We make a significant investment at the bid stage to ensure we identify and plan opportunities to mitigate risk and employ intelligent procurement strategies in order to maximise our performance. 12 13 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Overview Think different,

What makes an individual a Petrofac person? act different, A personal set of attributes exist in every one of our employees at every level of the business, marking us apart: a restlessness and a desire be different to always raise the bar; a willingness to be accountable for our actions; a relentless focus on the customer; and an entrepreneurial spirit.

Small ideas, Entrepreneurial culture big impact keeps us nimble

Taking ownership of a challenge or task There is a fierce desire to succeed within has always formed the cornerstone of our Petrofac. Nothing is taken for granted, no approach – and it remains totally relevant solutions are pre-destined. We welcome today, whether the challenge in question challenge, pushing ourselves to break concerns US$10,000 or US$1 billion. moulds and to constantly think of better In our experience, a succession of relatively ways to deliver performance – always minor improvements can deliver a significant without compromising our focus on improvement to both customer relationships risk management, which begins in the and project performance. Boardroom and extends into every area of our operations.

Accountability, customer focus and attention to detail

Our people are keen to take responsibility and quick to show it, by doing exactly what we say we will do. Senior personnel are engaged with each project and take personal pride in keeping customers and partners informed on performance at all times. Overview

Training to world-class world-class to Training standards From creating and managing programmes for major multinationals ensuringto that our customers’ local workforces have the skills required to operate complex plant in hazardous environments, Petrofac Training Services delivers world-class standards. train We more than 50,000 individuals annually, enabling our customers benefit to from more competent, safer and more efficient workforces. Innovative Innovative partnerships is business Developments Energy Our one of Petrofac’s key differentiators. co-invest to ability Its its in lies strength core with a customer in upstream oil & gas Through infrastructure. energy and assets thisinnovative partnership approach, we are able to align our interests with those of the customer and leverage the broader order in group our of capabilities service enhance to project returns. solutions Creative that deliver ventures, joint contracts, Lump-sum reimbursable performance-linked contracts, co-investment… our relationships with our customers may come in many different forms, but they innovation theme: common a by united are and flexibility. In short, we will endeavour createto whatever solution is necessary in order deliverto value for stakeholders, applyingby fresh thinking.

and accounts 2009 15 Petrofac Annual report

approacha different A freshA perspective, Our competitive advantage is built on a differentiated differentiated a on built is advantage competitive Our flexible, and innovative Commercially model. meet business that solutions tailored create to us enables it wide-ranging a offer We needs. customers’ our design from extending service, integrated fully and decommissioning,to in addition co-investment to through our Energy Developments team. 14 Petrofac Annual report and accounts 2009 16 17 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009

We are an integral part of the lives of our Overview people and of the communities in which we operate – and we take our responsibility to them very seriously. Our aim is to be a positive influence at all times, from maintaining our health and safety record to providing opportunities for our people, protecting the environment and supporting local organisations.

Creating opportunities

In 2009 we became one of the founding The extensive support we provide to members of the 100-Club Foundation of local communities is centred around the Higher Colleges of Technology (HCT) education. In North Africa, the Middle in Abu Dhabi. The HCT sets out to promote East and Asia, as well as in the UK, industry/education partnerships and practical help and financial donations through our sponsorship we are supporting have been key to helping thousands the continued development of young UAE of young people seize opportunities nationals and enhancing the HCT’s offering they would otherwise have been for both students and industry throughout denied. Projects range from building the centre’s 16-campus network. The classrooms and providing whiteboards programme is extremely progressive to donating books and supporting and we believe it is initiatives such as road safety initiatives. the 100-Club programme that will help us to achieve our objectives with regard to social investment in education, training and development. These objectives are core to ensuring the future sustainability of our workforce in Abu Dhabi and in other places where we operate. Integrity, support, responsibility: the difference is demonstrable 18 19 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Chairman’s statement

Chairman’s statement

This has been another outstanding year for Petrofac. Our strength in execution, our strategic focus on markets Business review and regions where there has continued to be strong demand and the increasing scale of our operations, have again combined to deliver record revenue and profits. Revenue grew by 10% to US$3,655 million and net profits increased by 33% to US$353.6 million.

Market overview At the same time, we also expanded our geographic At a macro level, the global economic downturn footprint during the year, winning major contracts in continued to be a major factor throughout 2009. Abu Dhabi, Saudi Arabia and Turkmenistan. Consumer confidence remained low while the banking crisis prevented many companies from obtaining the In an important realisation of our strategy for Energy funding they needed to undertake large-scale projects. Developments, we announced, on 4 March 2010, the proposed demerger of our UK Continental Shelf oil & Energy consumption was hit hard and I believe that gas assets to a new company, EnQuest PLC, which will it will be some time before we see any significant also acquire the UK Continental Shelf oil & gas assets increase in demand for hydrocarbons. Against of Lundin Petroleum, the Swedish oil & gas exploration this background, it is to be hoped that we do not and production group. Following the demerger, experience a rise in protectionism. World trade is EnQuest PLC will be admitted to the Official List and challenging at any time, but it is a prerequisite for to trading on the main market for listed securities of the a thriving energy sector, as it is for many others. London Stock Exchange and admitted to the Trading List and to trading on the Stockholm Stock Exchange Our progress via a secondary listing. Petrofac shareholders will own Despite the turbulence facing many western 45% of EnQuest PLC. economies and businesses, we again experienced strong demand for our services and have secured Dividends significant new orders during the year which underpin The Board is recommending a final dividend of 25.10 future earnings. The Company has minimal debt cents per ordinary share, equivalent to 16.69 pence and a cash balance of around US$1.4 billion and per ordinary share which, if approved, will be paid on the Board’s policy of maintaining a conservatively 21 May 2010 to eligible shareholders on the register structured balance sheet has ensured that we have at 23 April 2010. Together with the interim dividend of maintained a robust financial position. 10.70 cents, equivalent to 6.46 pence, this gives a total dividend for the year of 35.80 cents per ordinary share, How have we continued to grow during a period of an increase of 41% over 2008. recession? The achievements of 2009 are as a result of a clear and consistent strategy. We have high quality Corporate governance and corporate social people throughout our organisation and a proven ability responsibility to serve our customers on large projects. Our recent In the wake of the crisis in financial services, regulators growth has been reflected in the scale and complexity are rightly concerned about risk management and our of the projects that we are now winning, underpinned progression in undertaking larger and more complex by our proven execution capability and excellent track projects has been accompanied by continued record in the lump-sum turnkey market. development of our risk management systems and processes. We remain committed to identifying, Our strategic focus remains on the regions that managing and mitigating risk in all areas of our we know well. When it comes to investing in major operations and, to this end, the Board’s Risk Committee infrastructure projects, National Oil Companies (NOCs) deepened its oversight processes during the year. are in a more advantageous position than many other organisations. Many of our customers have continued From a community perspective, we continue to to invest in large-scale developments through the support and promote education and training in the economic down-cycle, and our strength in delivery regions where we operate, seeking to improve the has placed us in an ideal position to work with them. future prospects of both the local children and of our workforces. In addition to the many programmes which we run with local schools close to our operations, we are also establishing a new training centre in Syria. 20 21 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Chairman’s statement

Chairman’s statement continued

Our people Outlook Our growth is inextricably linked to our success We secured a number of high value orders during in attracting, retaining and developing our people. 2009. Added to our existing backlog, these new orders

Petrofac has long been a business where the brightest give us excellent visibility of earnings and cash flow for Business review talents are encouraged to do their best work and we the coming two to three years. are committed to ensuring that it remains so with a number of talent management initiatives planned for 2009 has been a notable year for our group, our strong the year. operational performance was reflected in the share price improvement during the period and it was During the past year, our numbers increased from pleasing to be named as one of the FTSE 100’s five some 11,100 to 11,700 as we brought in new skills best-performing stocks of the year. Notwithstanding and experience to complement our extremely capable these achievements, we are ever alert to the risks of employee base. In particular, our leadership capability complacency and recognise the increasing capability was significantly expanded in 2009, underpinning in our sector from firms based in the East, so we will our ability to work on the largest and most continue with our prudent balance sheet strategy, challenging projects. our rigorous approach to risk management and our complete focus on execution excellence. On behalf of the Board, I extend our thanks unreservedly to all of our employees across the I thank our shareholders, customers, partners and world. It has been a privilege to witness their expertise, suppliers for their support in 2009. Together, we can commitment to excellence and constant focus on look forward to 2010 and beyond with confidence. safety throughout the year.

The Board This has been another year of stability for your Board, which benefits from great international diversity and a tremendous breadth of experience. Following our Rodney Chase announcement on 4 March regarding the proposed Chairman demerger of our UKCS oil & gas assets, it is anticipated that Amjad Bseisu will step down from the Board in April 2010 subject to being appointed Chief Executive of EnQuest PLC and the successful listing of shares of that company. Aside from this, no changes have been made to the Board’s composition since the Annual General Meeting held on Friday 15 May 2009. At the 2010 Annual General Meeting two of our long-serving Non-executive Directors will be retiring from our Board. I would like to thank Michael Press and Bernard de Combret for their significant contributions to the Board since joining in 2002 and 2003, respectively. As a result, and subject to shareholder agreement, we look forward to welcoming two additional members to the Board in May, Thomas Thune Andersen and Stefano Cao. 22 23 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Interview with the Group Chief Executive

Interview with the Group Chief Executive As Ayman Asfari reflects on 2009, he explains some of the key differences that have underpinned Petrofac’s Business review achievements and outlines why he is feeling confident about the future.

Why was 2009 such an exceptional year for 2009 has been undoubtedly Petrofac’s best year yet Petrofac? Can this success be sustained? and there have been many highlights. At the beginning There are a number of reasons, but the group’s of the year we launched a new organisational structure continuing focus in our core geographic areas, which, although essential for our continued growth, especially the Middle East and North Africa, for could have been a distraction, and our teams are to engineering and construction activities has been be commended for retaining their focus on growing fundamental. The National Oil Companies in these the business. regions have continued to invest through the down- cycle, capitalising on the economics of a softening Although our share price performance was badly market, and as a result, we have secured several affected, along with everyone else, by the economic significant contracts on a lump-sum turnkey crisis at the end of 2008, we charted a steady rise (LSTK) basis. in share price performance throughout 2009. As the year closed it was pleasing to note that Petrofac was The demand for hydrocarbon production and the fifth best performing stock in the FTSE 100 and processing facilities in these regions is significant, the only non-mining stock to make the top five. and I am confident we will continue to see many other projects brought on line throughout 2011 and beyond. What initiatives are in place to further improve As one of a few Western companies willing and able the group’s track record on delivery? to contract on a LSTK basis this presents us with We are, and will continue to be, obsessed about opportunities for further organic growth in existing the way in which we deliver and execute our projects. markets, but I would hope this would also extend We have very robust processes and procedures in to some new areas such as West Africa. place but we are always challenging ourselves to refine these. One of the features of our business in recent What were the key highlights of 2009? years has been management of rapid growth while The year started positively with the award of our ensuring our quality benchmark is not compromised. largest contract to date. Awarded in January, by the Quality management is therefore a focus area for our Abu Dhabi Company for Onshore Oil Operations business and is underpinned by other initiatives such as (ADCO), the 44-month Asab field development project succession planning, along with the continuous training in Abu Dhabi is valued at US$2.3 billion. and development of our management and their teams.

It was also pleasing when a number of contracts were Petrofac is now organised into seven business awarded to the joint ventures (JVs) and companies units. How would you describe the performance which comprise our Engineering & Construction of those units during 2009? Ventures business unit. Petrofac Saudi Arabia secured The Engineering & Construction (E&C) and Engineering a contract from Saudi Aramco for the Karan utilities & Construction Ventures (E&CV) businesses secured and cogeneration package. Our 50%-owned JV with a number of new and important contracts, and have Mubadala Petroleum Services LLC, Petrofac Emirates, made a significant contribution to the group’s backlog secured the contract for the construction of the and overall financial performance. These businesses NGL 4th train for the Integrated Gas Development in also continued to deliver upon existing contracts Abu Dhabi, in conjunction with Korea’s GS Engineering through the year and progress on their growth journey & Construction. with a complete focus on people, quality and safety.

First oil was achieved from the Don area development Engineering Services has had a more challenging year, during the first half of the year, with West Don brought like all of our businesses contracting on a reimbursable on stream within 12 months of receiving field basis, because they are more reliant on discretionary development programme approval (FDP); this was spending. In addition to providing consultancy and a major achievement. conceptual front end engineering design studies from our Woking office, this business continues to provide vital support and resources for our E&C businesses, and has seen its operations in India continue to expand. 24 25 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Interview with the Group Chief Executive

Interview with the Group Chief Executive continued

Offshore Engineering & Operations (OE&O) also As a result of achieving both the export from Don by What do you think has driven Petrofac’s success had a challenging year operating in a lower oil price pipeline via the Thistle platform and the start-up of in 2009? environment. Notwithstanding this backdrop, the production from the Don Southwest sidetrack well, Petrofac has stayed committed to, and focused on, reorganisation enabled the business to re-define its the first phase of the Don development is now our core strengths. Our ability to manage risk enables Business review focus areas in operations management and offshore complete. We believe, therefore, we have optimised the us to contract via LSTK and to develop other risk/ projects. As a result OE&O secured two important new added value to be derived from the application of our reward models for contract execution as demonstrated contracts with Apache and BP in the North Sea, while service capability on the Don assets. On 4 March 2010 through Energy Developments and Production successfully extending a number of contracts with we announced our intention to demerge our North Sea Solutions. We have an internal culture that is focused existing customers. offshore assets from the Petrofac group. If we on the detail, driven by the high levels of ownership in successfully conclude the transaction, our operated our organisation. While we are now much bigger, every Production Solutions was created as part of our interests in both West Don and Don Southwest, and project is managed like a small company and this is reorganisation at the beginning of 2009. It is the Elke field will be combined with the North Sea something we seek to maintain as we grow. It is our comprised of our specialist consultancy and assets of Lundin Britain Limited (Thistle, Deveron, culture to believe focusing on the US$10k task in hand technology businesses and is focused on providing Broom, Heather and Peik), to form a new development will help to deliver and ensure performance on the specialist sub-surface technology and know-how and production company called EnQuest PLC. US$1 billion project. to enhance production on mature assets. Production Solutions contracts on a gain-share or quasi-equity Upon its successful conclusion, this transaction will What is the outlook for the next five years? basis in order for it to align its interests with those of represent an important realisation of our strategy. I expect our business to continue to grow, but it’s not the customer or partner where taking an equity stake realistic to expect this to increase in line with the last is not an option. The consultancy and technology Are there going to be major changes to the five years. For all the reasons outlined in these pages businesses continue to operate on their own projects strategy, as it continues to unfold? I believe there will be many opportunities for our group, but are working together on a number of proposals for Although our strategy is essentially unchanged there so we will continue to stay focused on our core projects where we could deliver our integrated offering. are some important aspects to highlight. With regards capabilities and markets, increasing and expanding to our investments we have always said that our gradually. Achieving excellence in project delivery, Training Services is a key differentiator for our strategy is to add value and then, when there is no having the best and brightest people as part of our group and enables Petrofac to assist our customers or limited value for Petrofac to add, to exit and to organisation and paying particular attention to ensuring to develop safe and skilled national workforces. re-deploy the capital in new projects or to return it we have robust systems and processes in place will During the year the business experienced a change to shareholders. The harvesting of our Don assets drive our business forward and underpin our ability to in management and in July we welcomed Paul Groves is an important realisation of this strategy. maintain the quality of our earnings and to ensure our as the unit’s managing director. The business unit’s growth is sustainable. core focus in the UK is around its safety training Even without the Don assets Energy Developments provision and in 2009 this was impacted by the remains a key part of our business portfolio and we reduction in discretionary spending. Training Services will continue to look for further opportunities in which often works alongside other businesses in the group the group can invest and bring to bear its services and in conjunction with Petrofac E&C is designing and to add value for itself, partners and shareholders. building a technical training centre in Syria. This type We also see a major market for opportunities which Ayman Asfari of activity will assist the unit to achieve its growth can be developed on a gain-share or quasi-equity Group Chief Executive aspirations as will its focus on the provision of technical basis, using commercial models such as production training and managed services in relation to the enhancement, and we hope to realise this aspect of development of safe and skilled workforces globally. our strategy in 2010 through Production Solutions.

Energy Developments selectively co-invests in We continue to work towards being able to provide alignment with partners and customers in oil & gas more integrated and therefore, more efficient production, processing, and transportation assets and services for our customers across our group the unit’s portfolio of operated assets have performed and the reorganisation into seven individual units well despite a lower oil price. During the year the was an important first step in achieving this. The business made its first energy infrastructure purchase reorganisation has also enabled us to broaden the and the business is pursuing a number of options in management bench. This will play an increasingly relation to the deployment of the now renamed AHOO1 important role as we strengthen our talent management (FPF1). One the most important aspects of Energy and development programmes, and seek to create Developments’ strategy is looking at ways in which to more value from our limited resources, our people, crystallise value from any investment. We have a track as we continue to grow. record of investing in upstream oil & gas assets and infrastructure developments where we can leverage the wider engineering and operations capability of the group. Under our ‘build and harvest’ strategy we continue to develop these assets and when we have added value through the application of our expertise, we seek to sell or swap assets in order to pursue new opportunities to make investments through our Energy Developments business. 26 27 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Operating review 01 Maintaining and improving on high safety standards Business review Petrofac’s range of services provides a total solution to meeting customers’ needs across the full life cycle of oil & gas facilities. Our successful track record spans more than 25 years and several hundred projects and is firmly based on a partnership approach, a total commitment to health and safety and respect and responsibility for the Our strategic initiatives communities in which we operate. 01 Maintaining and improving on high safety standards 02 Leveraging customer relationships We operate in some difficult and hazardous environments and the by providing a range of services safety of our people is paramount at all times. across the life cycle of an asset 03 Generating predictable, long-term Progress during 2009 returns from a diversified portfolio ■ During the year, our employees and subcontractors completed 67 million man-hours (2008: 67 million) of activity. Our lost of investments, leveraging the time injury and recordable injury frequency rates are key group’s service capabilities in performance indicators and are reported on page 33 and order to understand and manage are summarised below: better the risks involved ■ Our recordable incident frequency rate for 2009 was Strategy 0.38 per 200,000 man-hours (2008: 0.32), which compares 04 Focusing on regions with major well with industry published data. For the fourth year in a row We have delivered against a consistent strategy. hydrocarbon reserves where our lost time injury frequency rate has reduced and is now Our aim is to generate sustainable growth in value significant capital and operational 0.02 per 200,000 man-hours (2008: 0.03) expenditures are expected for our shareholders by leveraging our core Future milestones competencies, being the ability to engineer, build 05 Expanding Petrofac’s established ■ Our health and safety performance is reviewed in full on pages and operate oil & gas infrastructure, and the ability service offering into new countries 54 and 55 in the Corporate Social Responsibility report. and regions Through campaigns such as ‘horizon zero’, we aim to further to create and deliver value-adding investments. improve our safety performance in 2010 and beyond. 06 Assisting customers in achieving This means: their local content goals by ■ working to world-class standards increasing the use of local resources and improving the ■ focusing always on customer satisfaction competence and technical skills of ■ respecting the environment and being sensitive national workforces to the communities in which we work 07 Improving revenue and earnings ■ promoting and rewarding on merit stability through a diversified and We aim to achieve this goal through nine key complementary business model strategic initiatives. Our progress during the year 08 Attracting and retaining and some of our future plans are outlined opposite, recognised specialists and key and on the following pages: personnel/managing succession issues 09 Identifying, acquiring, integrating and developing complementary businesses, where appropriate 28 29 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

02 03 04 05 Leveraging customer Generating predictable, Focusing on regions with Expanding Petrofac’s relationships long-term returns from major hydrocarbon reserves established service a diversified portfolio offering into new countries

of investments and regions Business review

Progress during 2009 Through Energy Developments, our customers can access We remain focused on our key markets of the UKCS, the Middle While remaining focused on our key markets, we will look for our services under innovative commercial structures that ensure East and Africa, the Commonwealth of Independent States opportunities in new countries and regions, particularly where ■ We are increasingly focused on the provision of an integrated complete alignment of interests. We deliver investment support (particularly the Caspian region) and the Asia Pacific regions. they are in close proximity to existing operations. service, which was a major driver behind the reorganisation on upstream and infrastructure projects where we provide While there are many attractive opportunities in other regions, of the group into seven business units (see pages 6 and 7) engineering and construction or operations services. Through our key focus areas account for approximately 70% of the world’s a hands-on approach, we are able to better understand and proven oil reserves and 85% of its gas reserves1 and we expect ■ Our seven business unit managing directors now meet formally Progress during 2009 on a monthly basis with the Group Chief Executive and his manage a project’s risks and therefore earn a differentiated return. significant capital and operational expenditures in these regions. ■ direct reports and we are already seeing the benefits of this We recently identified both Abu Dhabi and Saudi Arabia as more integrated approach potentially significant markets for Engineering & Construction Progress during 2009 Progress during 2009 over the medium to long term. We have been actively bidding ■ A good demonstration of our integrated approach is the for projects in these regions since 2008 and we were development of the Don project where our business units ■ We commenced oil production from the West Don field in April ■ In most of our key markets, particularly in relation to successful in securing our first major contracts in these worked together, providing engineering, construction, 2009, less than a year from field development programme Engineering & Construction projects, development costs are regions in early 2009 commissioning and operations services to successfully deliver approval, and from Don Southwest in June 2009, which comparatively low. Consequently, many of our customers, ■ Building upon our recent success in the Caspian region, first oil in April 2009, less than a year from field development represented a great achievement for Petrofac and our partners particularly those National Oil Companies that are well funded throughout 2009 we have been in discussions with the programme approval even at lower oil prices, have continued to invest in oil & gas ■ In July 2009, we acquired a floating production facility from state-owned gas company, Turkmengaz, in relation to projects throughout the downturn ■ At ENI’s Bacton plant, Engineering Services completed the Hess Limited and Endeavour Energy UK Limited. Once we providing engineering services to develop their South Yoloten feasibility study for the installation of Caltec’s (Production have agreed a deployment opportunity (which may involve ■ Our focus on these markets has helped us deliver a very gas field in Turkmenistan. We were delighted to announce Solutions’ technology business) WELLCOM multiphase an opportunity for Energy Developments to take an equity successful year in relation to new contract awards, with our a contract at the end of the year to undertake a FEED study boosting unit (which boosts low-pressure wells and separates position in an upstream development), we will undertake Engineering & Construction new order intake for 2009 reaching and initial planning and set-up studies. After satisfactory gas and liquids), which was installed and commissioned by upgrade and modification of the facility in excess of US$6 billion conclusion of the first phase, worth US$100 million, the Offshore Engineering & Operations contract contemplates moving into a second phase which will include engineering, procurement and commissioning work. Future milestones Future milestones The second phase will be on a lump-sum basis, with a value Future milestones not to exceed US$4 billion ■ A key part of Energy Developments’ strategy is to ■ We will remain focused on our key markets which should ■ We are confident that our group reorganisation will enable us consider divestment (or ‘harvest’) of assets once they position us well to benefit from increasing operational and to continue our success in generating opportunities to combine have been developed capital expenditure our services and provide an integrated approach Future milestones ■ We have created value for our shareholders through ■ We were very active bidding in our key markets during ■ We plan to strengthen further our position in existing markets, development of West Don and Don Southwest and following 2009 and expect to remain so throughout 2010 and beyond. such as in Abu Dhabi, where, through Petrofac Emirates, our the commencement of oil production and significant progress Through our strong competitive position, we expect to secure joint venture with Mubadala Petroleum Services Company LLC, on commissioning of the production infrastructure, we plan further project awards in the coming months a wholly owned subsidiary of Mubadala Development to demerge our investments in the fields in March 2010, Company, we have established an engineering centre which thereby realising value for our shareholders (see page 18 we plan to grow to several hundred full-time staff over the next for more detail) few years ■ Energy Developments will continue to review opportunities to ■ We would hope to develop a strong competitive position in further develop our remaining assets and to appraise new Turkmenistan, which has the fourth largest gas reserves in the upstream and energy infrastructure opportunities, though we world, and where there is limited existing capability and the will only do so if the project meets our strict investment criteria development of their substantial oil & gas reserves is in its early stages

■ We will continue to look at expanding into new countries and regions, such as West and Central Africa and, over the next few years, we would expect Iraq to develop into a significant 1 As per the Energy Information Administration of the US Department market for oil & gas services of Energy, as at 9 February 2009. Oil reserves include 173 billion barrels of Canadian oil sand reserves. 30 31 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

06 07 08 09 Assisting customers Improving revenue and Attracting and retaining Developing complementary in achieving their local earnings stability recognised specialists and businesses content goals key personnel Business review

A key factor in the delivery of our strong execution performance We have always sought to be flexible and innovative with Progress during 2009 Progress during 2009 is our engagement with local resources, through recruiting in our commercial models, providing services under a range the local market and establishing long-term relationships with local of commercial structures from reimbursable services (such as ■ Although skilled personnel remain in unprecedented demand, ■ Caltec Limited and Eclipse Petroleum Technology Limited subcontractors, particularly construction subcontractors. These operations or engineering services), reimbursable services with we have been successful in accessing international labour were acquired in 2008. Since January 2009, these businesses relationships increase the local content on projects and ensure that significant key performance indicator (KPI) related income (such markets, including through graduate recruitment, in particular have been grouped with our other consultancy businesses the group operates responsibly through improving the competence as Duty Holder or service operator contracts), to the provision in the Middle East, the Indian Subcontinent and Asia Pacific within Production Solutions. While, like the majority of our and skills of local workforces. of lump-sum EPC services, and, when our investment criteria consultancy businesses, Caltec and Eclipse have faced ■ We have grown our headcount from approximately 11,100 at a challenging year as customers have typically deferred are met, we may put our capital at risk and take an equity stake December 2008 to approximately 11,700 at December 2009 in a development. discretionary expenditure, we have been pleased with the ■ We have seen significant growth in our largest reporting progress with which we have integrated these businesses Progress during 2009 segment, Engineering & Construction, where employee into the group. Of particular note has been the development ■ We have established subcontracts with many local and Progress during 2009 numbers have grown from 3,400 to 4,200 of the rental model for Caltec’s production technology products regional construction contractors for the new Engineering & aimed at the enhancement of production from mature fields ■ Furthermore, our Engineering & Construction reporting Construction projects secured during the year. We have ■ Following our recent reorganisation, we are now looking segment is supported by our Engineering Services’ offices ■ In early January 2010, we were pleased to announce the worked with the vast majority of these contractors before, to package together some of our consultancy businesses in Mumbai and Chennai, where we have recently moved acquisition of Scotvalve Services Limited, a mechanical and are confident that with their involvement we can execute through Production Solutions and to undertake production into larger premises and now have around 1,300 employees services business headquartered in Aberdeen, but with our contracts in hand to a high standard with local resources. enhancement projects to improve the performance of marginal (2008: 1,000) interests in the Middle East and North Africa. The acquisition Petrofac Training plays an important role in developing national or mature fields, possibly on a tariff or quasi-equity basis of Scotvalve will enable Offshore Engineering & Operations ■ We have further widened our employee share ownership, workforces and, where necessary, will take an active role in to provide repair and maintenance services within a wider and now have around 3,000 employee shareholders developing competence and technical skills on our projects geographic footprint which often include local content targets Future milestones (representing around 28% of the eligible workforce)

■ During the year, we extended our relationship with BP to ■ Throughout 2009 we have been holding discussions with ■ As the group has grown during the year, we have broadened include a three-year training management services contract customers with regard to potential production enhancement and strengthened our senior management team with the Future milestones with BP North Sea. We will provide a full administrative training projects. We hope to be able to secure such a project within addition of further high calibre personnel, such as a new ■ We will continue to regularly review acquisition opportunities Group Treasurer, Group Head of Tax and Construction Director package, including identifying, procuring and scheduling all the coming months, which will allow us to begin to develop and we have a strong balance sheet to support such training requirements for 2,000 UK-based BP employees a track record in this market opportunities Future milestones Future milestones ■ In order to support our growth plans, we expect to further ■ In Saudi Arabia, we are looking to develop our own in-country broaden and strengthen our senior management team engineering capability to assist us to deliver projects with local ■ We plan to continue to increase headcount, particularly in resources and meet local content goals Engineering & Construction, through growing our existing ■ Through Training Services, we continue to review operational centres, developing our joint venture offices, opportunities to invest in and manage international training such as in Jakarta and Abu Dhabi, and establishing facilities (we currently operate 15 training facilities in seven in-country engineering offices, for example, in Saudi Arabia countries), and we are looking to extend our strategic relationships with our key National Oil Company and International Oil Company customers 32 33 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

07 08 09 Key performance indicators Earnings per share

(diluted) (EPS) 103.19

EPS provides a measure of net profitability of the

group taking into account changes in the capital 77.11 structure, for example, the issuance of additional To help the group assess its performance, the Board and share capital. executive management set annual KPI targets and monitor As reported in the consolidated income statement and and assess performance against these benchmarks on a calculated in accordance with note 7 to the financial 54.61 monthly basis throughout the year. Throughout this Business statements. Review, performance is assessed with reference to these Business review KPIs, the annual measures of which are presented here. Cents per share 07 08 09 07 08 09 07 08 09 Revenue Cash generated from 3,655 operations and cash 228.3 Measures the level of operating activity and growth of the business. 3,330 conversion Revenue for the year as reported in the consolidated income statement. 1,276.3 These KPIs measure both the absolute amount of

2,440 cash generated from operations and the conversion

of EBITDA to cash. 140.0

Cash generated from operations as per the consolidated 123.3 cash flow statement: cash conversion is cash from operations divided by EBITDA. 586.6 371.6 US$millions Cash conversion Cash % Cash generated from operations US$millions 07 08 09 07 08 09 07 08 09 EBITDA Lost time injury and 0.38 0.07

559.0 recordable injury

EBITDA means earnings before interest, tax, 0.35 depreciation, amortisation and impairment and provides a measure of the operating profitability frequency rates 0.32 of the business. EBITDA is calculated as profit before tax and net finance 419.0 Provides a measure of the safety performance income (as per the consolidated income statement) of the group, including partners. adjusted to add back charges for depreciation, Lost time injury (LTI) and recordable injury (RI) frequency

amortisation and impairment charges (as per note 3 301.3 rates are measured on the basis of reported LTI and to the financial statements). RI statistics for all Petrofac companies, subcontractors 0.03 and partners, expressed as a frequency rate per 200,000 man-hours. 0.02 US$millions Recordable injury (rates per 200,000 man-hours) Lost time injury (rates per 200,000 man-hours)

07 08 09 07 08 09 Net profit Backlog 8,071 Provides a measure of the net profitability of the The group uses this KPI as a measure of the business, that is, profit for the year attributable visibility of future earnings. to Petrofac Limited shareholders.

353.6 Backlog consists of the estimated revenue attributable Profit for the year attributable to Petrofac Limited to the uncompleted portion of lump-sum engineering, shareholders as reported in the consolidated procurement and construction contracts and variation

income statement. 265.0 orders plus, with regard to the engineering services and facilities management contracts, the estimated revenue

attributable to the lesser of the remaining terms of the 4,441

contract and, in the case of life-of-field facilities 3,997 188.7 management contracts, five years; backlog is not an audited measure; other companies in the oil & gas industry may calculate this measure differently. US$millions US$millions 07 08 09 07 08 09 Return on capital Employee numbers employed (ROCE) 52.7 Provides an indication of the group’s 11,700 47.7 11,100

45.7 service capacity.

ROCE is a measure of efficiency with which the group For the purposes of the Annual Report, employee numbers 9,800 is generating operating profits from its capital. include agency, contract staff and the group’s share of joint ROCE is calculated as EBITA (earnings before interest, tax, venture employees. amortisation and impairment charges, calculated as EBITDA less depreciation per note 3 to the financial statements) divided by average capital employed (being total equity and non-current liabilities per the consolidated balance sheet). % Number of employees 34 35 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Enterprise risk management and key risks

As we continue to grow and expand our range of Board level risk review during 2009 Corporate and project risk review processes Our key systems and procedures have been externally services, both technically and geographically, our The Board has increased its review and monitoring of We have well-established procedures embedded in the certified by a number of organisations, for example, project and customer concentration diminishes, but all discrete risks to the Company and now receives organisation for the assessment and review of risks in through customer-sponsored audits, and 98% of our Business review we face new risks and challenges to which our risk specific risk reports from all of our businesses at every relation to prospective projects and to manage the facilities have been accredited by Lloyd’s Register management systems and processes, both centrally scheduled Board meeting. These reports cover all risks in relation to existing projects. Quality Assurance to ISO 14001 requirements. The and at the project level, need to respond. In recognition areas of risk to the businesses and focus on providing accreditation process includes a review of the of our changing risk profile, we have further developed the Board with an update on specific discrete risks to Pre-award, all new projects and investments are management of material risks and business and our risk management systems and processes to our interests and the management strategies that are reviewed by the Risk Review Committee of the relevant operational controls in place to mitigate such risks. ensure that our risk management remains robust and deployed to mitigate them. business unit. The remit of the business unit Risk appropriate for the range of risks that we face. Review Committee covers items such as: Key risks The Board reviews detailed proposals for any Those key risks that could lead to a significant loss Enterprise risk management system significant new country of operations and for any ■ moving to new territories of reputation or that could prevent us from executing Our enterprise risk management system is designed project with a contract value in excess of US$1 billion. our strategy and creating shareholder value are ■ establishing contractual commitments to ensure that all significant risks to our reputation and During 2009, the Board has reviewed a number of summarised below, along with our approach to shareholder value are appropriately monitored and specific new country and new contract proposals on ■ providing new services mitigating these key risks. mitigated in line with the Board’s policy. These this basis and requested further assurance or set ■ investing capital enterprise risks to our reputation and shareholder preconditions to ensure that an acceptable risk profile value fall into three areas: was achieved. ■ entering lease commitments

■ establishing banking facilities and/or granting ■ Industry risks – the systemic exposure to The Risk Committee has performed an important security fluctuations in core commodity prices and demand additional enterprise risk management function during for our services. These risks are reviewed and 2009 by providing review and oversight primarily of ■ making acquisitions or the establishment of joint managed directly by the Board and senior non-project specific country risks and ensuring that venture relationships management team appropriate risk monitoring and management systems are in place. Our Internal Audit function receives all risk In addition, significant new projects and investments ■ Country risks – the exposure to external country reports that are presented to the Board or the Risk are also reviewed by a Corporate Risk Review factors that are inherent in the environments in Committee and independently audits any areas of risk Committee and potentially also by the Board directly, which we operate, including security, political risk, that it feels are significant from an audit perspective depending on the risk profile of the opportunity. Our legal risk and transparency, bribery and corruption, and reports its findings to the Audit Committee. delegated authority framework defines the levels of exchange rates and local infrastructure. Project review that are required based on the level of risk. This teams ensure that these risks are reviewed and ensures that a rigorous assessment of risks occurs for appropriate responses are built into the structure all of our projects and investments before any of the project execution and contracting model commitment is made, and that both project specific wherever possible. Our corporate functions monitor and country risk factors are assessed. In 2009, the this risk environment and the Risk Committee of Corporate Risk Review Committee reviewed 38 new the Board provides additional review and oversight. business proposals. The Board retains approval authority for any significant new country entry Post-award execution is managed by our project teams ■ Project specific risks – the risks pertaining to the and continuously reviewed by our business level execution of projects to customer specification, executives. Following our group reorganisation on including technical risk, budget and schedule risk, 1 January 2009, the business unit managing directors performance guarantee levels, safety risk and now meet on a monthly basis with the Group Chief environmental risk. These risks are directly Executive and his direct reports to review both the managed by our project teams. These risks are performance of each business unit and any discrete also core to our risk review process which reviews risks. A summary of these discrete risks is reported all new business proposals before any formal to the Board at each scheduled Board meeting during obligations are entered into. Our business unit the year. managing directors and their management teams report monthly on discrete execution risks to senior management and the Board. Through this review process, we ensure that there is constant focus and attention on maintaining and improving our execution capability 36 37 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Enterprise risk management and key risks continued

Industry risk Description Mitigation Country risk Description Mitigation

Level of The demand for our services is linked to As noted in the ‘Operating environment’ section, we expect the demand for our Political risk We are exposed to potential regime We monitor carefully the changing landscape of political risk, particularly for demand for the level of capital and operational services to remain robust over the long term. Our recent success in securing new change and civil unrest that could affect countries that are regarded as high political risk environments. This is also Business review the group’s expenditure by the oil & gas industry. and substantial contract awards gives us good visibility of revenues through to our operations reviewed regularly by the Board and the Board Risk Committee. services 2011 and beyond. For high risk countries our management will also seek to limit political risk Our continuing geographic and service expansion has helped to reduce our exposure in individual contracts as much as possible when agreeing contract exposure to some extent by increasing the size of the addressable market for terms and conditions with our customers. our services. Project risk Description Mitigation Oil & gas Long-term expectations of the price of As detailed in the ‘Operating environment’, our business should not be commodity oil & gas may have an impact on the level significantly impacted by short-term fluctuations in oil & gas prices and has Contract Our financial performance could be We have a strong track record of successful project execution which reflects our prices of new investment in the industry and proven robust to significant volatility in oil & gas prices over recent months. performance materially affected by the performance rigorous approach to risk identification and mitigation, from tender through to may therefore affect demand for our of a relatively small number of large project completion. During the year we established new assurance frameworks Management introduced a formal policy to hedge a proportion of our direct services. contracts, particularly those which for technical risk reviews. The progress made on key projects is formally reported exposure to oil & gas prices from 2009, thereby providing a degree of protection are lump-sum. Furthermore, our to the Board and senior management on a regular basis. With regard to financial The financial performance of Energy to fluctuations in the sale price variations for oil & gas. operational performance is important performance, we do not recognise profits in the early stages of lump-sum Developments is more leveraged to Under our hedging policy we aim to hedge 75% of our forecast production levels. in maintaining our reputation for contracts and we maintain contingencies to cover unforeseen cost increases. the price of oil & gas through its co- We will not undertake hedging until a development has achieved steady-state successful project delivery. investment in upstream oil & gas assets, production. and its financial result may be impacted. Counterparty Particularly given the downturn In Engineering & Construction, we typically receive advance payments on in economic conditions, there contracts, which generally have positive cash flow profiles over the duration of Availability of The availability of skilled personnel We remain confident that our policies to promote and reward on merit, targeted, is a risk of commercial counterparties the contract. This gives us added protection in the unlikely event that a customer essential remains one of the most significant but extensive, employee share ownership, management and technician training defaulting on payment terms or financial seeks to cancel or dispute the terms of a contract. In Offshore Engineering & executive or challenges facing the oil & gas industry. programmes and access to international labour markets, in particular the Middle counterparties defaulting on deposits that Operations, Duty Holder contracts are generally neutrally-funded. Our services project staff East, Indian Subcontinent and Asia, involvement in world-class projects and we hold with them. are often critical to ensure that customers continue to produce oil & gas and, exciting prospects for continued growth will enable us to attract and retain the consequently, customers are likely to honour contractual terms. In Energy necessary skilled personnel to undertake our projects in hand. Developments, remuneration is from oil & gas sales to a range of customers, including National Oil Companies, who are generally well funded. Nonetheless, Country risk Description Mitigation the group continues to regularly monitor its receivable balances and take appropriate action where necessary. Security We operate in a number of countries We have recruited a new Group Head of Security, who is responsible for focusing where the security risk is significant on high-risk territories, and we have expanded our use of specialist consultancies With respect to counterparty risk arising from other financial assets, we and security services to advise us and to provide protection. regularly monitor our exposure and ensure that our financial assets are spread across a large number of creditworthy financial institutions. Our new ‘Sovereign We have appropriate insurances in place to cover all of our staff and as part of and Financial Market Risk’ policy has established limits on counterparty this cover employ specialist security services on the ground in certain locations. cash exposure. Business We are potentially exposed to, inter alia, We have made significant progress with our business continuity planning during Further analysis of credit risk and other financial risks associated with or managed continuity natural hazards, acts of terrorism, war 2009. Our Woking office is now fully certified, and is the first company in the UK through the use of financial instruments, such as interest rate and liquidity risk, and civil unrest that could impact our in the oil & gas sector to receive the BS 25999 certification. are disclosed in note 31 to the financial statements. infrastructure, either through the Our Aberdeen operational centre now has a fully implemented and operational unavailability of physical assets or Cost inflation Unexpected inflation in costs While the majority of the costs of our Offshore Engineering & Operations and business continuity system and we have made substantial progress and access to systems and data. could adversely impact the financial Engineering, Training Services and Production Solutions contracts are reimbursed established a workable fallback solution for our key centres in Sharjah, Mumbai performance of our contracts. by customers, either on an actual cost basis or through a periodically revised and Jakarta which will be extensively tested in 2010. We aim to achieve schedule of rates, our largest exposure to cost inflation is in the provision of accreditation to external standards for our operations in Aberdeen, Sharjah, lump-sum Engineering & Construction services. Our exposure to increases in Mumbai, Chennai and Jakarta. capital expenditure costs associated with Energy Developments’ projects is managed in a similar manner to lump-sum Engineering & Construction projects. Exchange rates Significant movements in exchange rates While we operate in a number of diverse geographical locations, the majority of could impact our financial performance. our revenues are denominated in US Dollars or currencies pegged to the US Our costs are managed before and after bid submission as follows: Dollar. In contracts priced in US Dollars (or currencies pegged to the US Dollar) ■ where the group is procuring equipment or incurring costs in other currencies, conditional on the award of a major contract, we will typically negotiate we aim to have full hedging on transactional exposures using forward currency agreements to procure equipment and/or arrangements with key contracts. Offshore Engineering & Operations’ revenues and costs are principally subcontractors, on back-to-back terms where possible denominated in Sterling, however, as a policy, the group does not hedge the ■ expectations of wage inflation are factored into project costings for bid Sterling profits generated by these activities as they are substantially matched submissions and budgets by Sterling group overhead costs. While we report our results in US Dollars, our share price is quoted in Sterling. Our share price may therefore be impacted by ■ the group maintains contingencies to cover unforeseen cost increases changes to the US Dollar/Sterling exchange rate. During the year we established the new position of Group Head of Treasury and filled this position with a senior Health, safety A serious health, safety or environmental Our strong culture of health, safety and environmental (HSE) awareness is central external hire. and incident on any of our projects has the to our operational and business activities and is vital to our system of business environmental potential to cause significant commercial management and integral to delivery of quality and business excellence. Sovereign We operate in a number of countries Management carefully monitor this particular risk and wherever it is perceived performance and reputational damage. Recorded incident data demonstrates our ongoing success in managing this risk change of law where our ability to rely upon our to be significant will take all measures available to reduce and limit the exposure (see pages 54 to 57 for details). Particularly, as we enter new geographical and contract contracts for protection is potentially through the use of, for example, out of country arbitration and advanced markets, sometimes with new customers and partners, and assume responsibility enforcement reduced by the opaqueness of the payments. Specific consideration of this risk is a feature of all new business for new infrastructure, it is imperative that our focus on HSE is maintained. Our legal system risk reviews. financial exposure to a significant HSE incident is generally mitigated through our commercial arrangements and insurance programme, although an incident may Breach of legal We recognise the potential financial and As noted in the Corporate Governance report on pages 69 to 75, we have have a financial impact on our performance-based income. We plan to appoint or regulatory reputational risk that could result from well-established policies and procedures to address these risks, including a dedicated Environmental Manager during 2010. code a breach of local or international laws, a recently revised Code of Business Conduct which all employees are required particularly in respect of behaviour to confirm that they have read. relating to bribery and corruption. The list above does not purport to be exhaustive. There may be other risks and uncertainties, not presently known to us or that we Management is increasingly adopting a risk-based approach to due diligence currently deem to be immaterial, that could affect the performance of the business. and risk assessment and is increasing the level of due diligence undertaken in respect of new contracts in potentially high risk countries, including commissioning independent investigation where this is deemed appropriate. We have also refreshed and reinforced our policy on the use of agents. 38 39 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Operating environment

Long-term demand expected to remain strong Operational expenditures remain robust, Despite the global economic downturn, there has been though increased tendering activity little change in expectations for long-term growth in Approximately 25% of our revenue in 2009 was Business review global demand for oil & gas. generated by our businesses which rely upon our customers’ operational expenditures, namely, While global demand for oil may have fallen by around Offshore Engineering & Operations, Training Services 1.5% in 2009 compared to 20081, the International and Production Solutions, where activities are largely Energy Agency’s (IEA) reference case sees global focused in the UKCS and the UAE. As expected, demand for oil increase by approximately 24% from operating expenditures largely remained robust during current levels of around 85 million barrels per day (bpd) 2009, as our customers continued to operate and to around 105 million bpd by 20302, driven primarily by maintain their facilities. We did, however, see many an increase in demand from China, India and the of our customers defer discretionary expenditure, Middle East. Global demand for gas is expected to particularly in our consultancy businesses and in increase by approximately 43%1 from around 48 million some areas of Training Services, though we are seeing bpd of oil equivalent to 69 million bpd of oil equivalent an increase in opportunities for these businesses and over the same period, with an increase in demand expect them to return to growth during 2010. expected in most regions, particularly in the Middle East. Over the long term, we expect to see many Significant investment in new-build production and opportunities for Training Services, as the industry transportation infrastructure is required to meet the will require to recruit and train many new engineers expected growth in demand. In addition to new-build to replace those set to retire in the next few years. We capacity, a large proportion of investment is required are looking at building upon our strategic relationships to replace existing production facilities3. Overall, the IEA with key NOC and IOC customers to assist them with estimates that US$11 trillion is required to be invested this challenge. in oil & gas infrastructure by 2030. Approximately US$5 trillion (in excess of US$200 billion per annum) of this During 2009, we have seen an increased focus on cost expenditure is expected to be in our key Engineering control from our customers and, as expected, many & Construction markets of the CIS, Middle East and customers have or are considering tendering contracts Africa. Our record order intake of US$6.3 billion in rather than renewing or extending them. While this Engineering & Construction in 2009 represents a represents both a threat to existing service contracts relatively small market share of a very large and and an opportunity to secure new business, we have growing market. Consequently, we expect demand been a net beneficiary of this activity, securing two for the group’s Engineering & Construction services significant contracts in our Offshore Engineering & to remain strong over the long term. Operations business where we were not the incumbent (see page 44 for details). In 2009, even with an estimated 19% reduction in capital expenditure compared to the prior year4, the We expect to see more tendering activity throughout market for our services remained robust. The majority 2010, and see this as an opportunity to grow further of project postponements and cancellations were in our operations businesses that are dependent upon high-cost production areas, such as Canadian oil operational expenditures. sands or deepwater developments (which are not focus areas for the group). Our core markets for Engineering & Construction are in areas where development and production costs are generally lower than average, such as onshore developments in the Middle East and Africa and many of our customers are well-financed NOCs, which are continuing to invest through the downturn.

Capital expenditure is expected to increase by around 7% in 20105 and more projects are expected to be sanctioned this year than in any year since 20066. This is likely to result in an increase in conceptual studies 1 Per the IEA’s Oil Market Report, 15 January 2010. and FEED studies, many of which were deferred in 2 This is the IEA’s reference scenario per the World Energy Outlook 2009. The reference scenario describes ‘what would 2009. We have already started to see an improved happen if, among other things, governments were to take no pipeline of bidding opportunities for our Engineering new initiatives bearing on the energy sector, beyond those Services business, which is focused on such early- already adopted by mid-2009’. cycle opportunities. 3 The IEA (World Energy Outlook 2009) estimates that less than one-third of global gas production in 2030 will be met by existing production. Goldman Sachs (‘280 Projects to Change the World’, 15 January 2010) forecasts that decline rates are such that OPEC will be at full utilisation from 2011/12 and non-OPEC supply has been in decline since 2004. 4 IEA, World Energy Outlook 2009. 5 ‘Global E&P Spending Analysis’, JP Morgan Cazenove, 24 February 2010. 6 ‘280 Projects to Change the World’, Goldman Sachs, 15 January 2010. 40 41 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Operating environment Review of operations continued

Opportunities for Energy Developments Conclusion On 1 January 2009, the group reorganised its operations into seven business units, reporting under four segments: We saw more upstream opportunities in the early part Despite an uncertain economic environment in the of 2009 for Energy Developments as a number of our early part of the year, we had a very successful year Business unit Reporting segment Business review customers, particularly smaller independent oil in 2009, securing new contract awards, both in Engineering & Construction > Engineering & Construction companies, faced more challenging access to debt Engineering & Construction and Offshore Engineering Engineering & Construction Ventures and equity markets and a lower oil-price environment. & Operations. Our new awards resulted in the group Offshore Engineering & Operations > Offshore Engineering & Operations However, we remained focused on our strategy of only increasing its backlog to US$8.1 billion (2008: US$4.0 Engineering Services investing in development opportunities with limited billion), which provides good visibility of revenues Training Services > Engineering, Training Services and Production Solutions sub-surface risk, and maintained our strict investment through to 2011 and beyond. Production Solutions criteria in relation to assessing projects on the basis of returns based on conservative oil price assumptions. Notwithstanding that we still face significant Energy Developments > Energy Developments Consequently, we did not complete any new upstream competition, the improvement in general economic investments during the year. conditions, including the oil price returning to around We present below an update on each of the group’s reporting segments: 2007 levels1, and indications that customers are Revenue Operating profit1 Net profit2 EBITDA We did, however, complete our first investment in increasing their capital expenditure programmes, US$ millions 2009 2008 2009 2008 2009 2008 2009 2008 energy infrastructure with the acquisition of the FPF1 gives us confidence in the medium-term outlook. floating production facility (see page 49) and we see Longer-term, the key drivers determining capital Engineering & Construction 2,509.0 1,993.5 321.6 241.2 265.1 206.3 346.5 252.4 further good opportunities in this market. With our and operational expenditures and our geographic Offshore Engineering strong balance sheet, we remain well positioned to focus should ensure that our long-term prospects & Operations 626.7 776.6 17.8 23.2 12.8 16.4 19.7 24.7 invest in upstream and energy infrastructure remain strong. Engineering, Training Services opportunities and we continue to review a number and Production Solutions 349.7 510.4 34.5 48.3 32.4 33.1 42.6 61.9 of opportunities. 1 The average price for Brent in 2007 was US$72 per barrel. Energy Developments 248.7 153.4 77.4 51.7 46.2 21.9 160.9 89.1 Corporate, consolidation and elimination (78.7) (104.4) (10.1) (8.8) (2.9) (12.7) (10.7) (9.1) Group 3,655.4 3,329.5 441.2 355.6 353.6 265.0 559.0 419.0

Revenue growth Operating margin Net margin EBITDA margin Growth/margin analysis % 2009 2008 2009 2008 2009 2008 2009 2008 Engineering & Construction 25.9 70.4 12.8 12.1 10.6 10.4 13.8 12.7 Offshore Engineering & Operations (19.3) 0.3 2.8 3.0 2.0 2.1 3.1 3.2 Engineering, Training Services and Production Solutions (31.5) 13.4 9.9 9.5 9.3 7.3 12.2 12.1 Energy Developments 62.1 15.5 31.1 33.7 18.6 14.3 64.7 58.1 Group 9.8 36.4 12.1 10.7 9.7 8.0 15.3 12.6

1 Profit from operations before tax and finance costs. 2 Profit for the year attributable to Petrofac Limited shareholders. 42 43 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Review of operations continued

Engineering & Construction Our principal contract awards during the year were: Revenue South Yoloten gas field development, Turkmenistan The Engineering & Construction reporting (US$ millions) ■ We were awarded a contract in late December segment includes the group’s Sharjah-based Asab field development, Abu Dhabi 2009 by Turkmengaz, Turkmenistan’s state-run Business review Engineering & Construction business unit and ■ Awarded in January 2009, the Asab field 07 08 09 gas producer, to undertake a FEED study and initial Engineering & Construction Ventures, which has development is a 44-month US$2.3 billion lump- planning and set-up studies for a 10 billion cubic been established to replicate the success of the sum EPC project with Abu Dhabi Company for metres per annum (bcma) gas processing facility Sharjah business, but in new markets, such as Onshore Oil Operations (ADCO) to upgrade along with the infrastructure and pipelines for the 2,509 Abu Dhabi and Saudi Arabia. Our core markets for facilities at the onshore Asab oil field in Abu Dhabi. entire 20 bcma development (a second 10 bcma this business remain the Middle East, North Africa gas processing facility will be built by another Karan utilities and cogeneration package, and the Commonwealth of Independent States 1,994 contractor). After satisfactory conclusion of the first Saudi Arabia (CIS), particularly the Caspian region. phase, worth US$100 million, the contract ■ Awarded in February 2009, the Karan utilities and contemplates moving into a second phase which cogeneration package is a 34-month project with Our strong partnerships, proven execution track record will include the engineering, procurement and Saudi Aramco to build utilities and cogeneration and long-established presence in the Middle East and commissioning work. The second phase will be

facilities at the Khursaniyah gas plant in Saudi 1,170 North African markets has helped us achieve a record on a lump-sum basis, with a value not to exceed Arabia. The capacity of the plant is being extended order intake during the year of US$6.3 billion, which US$4 billion. to accommodate approximately 1.8 billion cubic also includes a US$100 million FEED study for feet of high pressure sour gas from the offshore Turkmengaz, where the contract contemplates moving Results Karan field. into a second phase multi-billion dollar EPC project Engineering & Construction achieved strong revenue during 2010. Initial progress on our new awards has El Merk central processing facility, Algeria growth in the year due to high levels of activity, been in line with our expectations and we have ■ Awarded in March 2009, El Merk is a 44-month Net profit principally on our projects in hand at the beginning of delivered good operational performance across our US$2.2 billion EPC project for a consortium led by (US$ millions) the year. Revenue increased by 25.9% to US$2,509.0 broader portfolio of projects: Sonatrach and Anadarko. We will design and build million (2008: US$1,993.5 million). The main the El Merk central processing facility in the Berkine 07 08 09 contributors to revenue were: the Ebla and Jihar gas ■ in Syria, we have made good progress on the Ebla Basin, which will have a design capacity of plants in Syria; the Harweel project in Oman; the gas plant for PetroCanada with first gas exports approximately 100,000 barrels of oil per day, In Salah gas compression project in Algeria; and expected in the next few weeks and remain on 29,000 barrels of condensate per day, 31,000 265.1 the Asab project in Abu Dhabi. schedule to complete the Jihar gas plant for the barrels of liquid petroleum gas (LPG) per day Hayan Petroleum Company (a joint venture together with a natural gas liquids (NGL) train with a Net profit increased by 28.5% to US$265.1 million

between the state-owned Syrian Petroleum nominal capacity of 600 million standard cubic feet 206.3 (2008: US$206.3 million), representing a net margin Company and INA Industrija Nafte d.d.-Naftaplin of gas per day. of 10.6% (2008: 10.4%). The growth in net margin is of Croatia) early next year due to continued strong operational performance, Kauther gas compression, Oman augmented by the recovery of prior year bid costs from ■ in Egypt and Tunisia, we completed and ■ Awarded in late June 2009, the Kauther gas

122.5 a bidding partner, the first-time profit recognition on a commissioned the Salam and Hasdrubal gas plants compression contract is a US$0.4 billion EPC project awarded in 2008 and a prior year adjustment in for Khalda Petroleum (a joint venture between project for a gas compression system and relation to the applicability of a lower tax rate in relation Apache and the state-owned Egyptian General associated facilities at the Kauther gas plant. The to our projects in Oman (see note 6 to the financial Petroleum Corporation) and BG Tunisia, contract scope also includes commissioning and statements), partially offset by the dilutive effect of the respectively six months of initial operations. The project follows recognition of revenue on some new contracts, where on from the successful completion of the Kauther ■ we made significant progress on the Harweel we are not yet recognising profit as the projects are in gas plant in 2007, which Petrofac built on an EPC Net profit margin cluster development project for Petroleum their early stages. basis for PDO Oman. In early 2008, Petrofac was (%) Development Oman (PDO), which is scheduled for asked to carry out the front end engineering and completion around the middle of this year Over the year, Engineering & Construction grew its design for a gas depletion-compression project 07 08 09 headcount from 3,400 to 4,200. In addition, our ■ we made substantial progress on the In Salah gas and then invited to submit a commercial proposal engineering offices in Mumbai and Chennai are compression project in Algeria for Sonatrach, BP for the EPC on a negotiated basis. 10.6 10.5

10.4 reported within our Engineering, Training Services and Statoil, where the three compression stations Fourth NGL train at Integrated Gas Development, and Production Solutions segment, but principally are due for completion later this year Abu Dhabi support our Engineering & Construction activities. ■ in Kuwait, we completed the performance test for ■ In July 2009, we were awarded a contract through At 31 December 2009, we had approximately the last of the gathering centres in the facilities our 50% owned joint venture, Petrofac Emirates, 1,300 employees in our Indian offices (2008: 1,000). upgrade contract and all stations are now and in partnership with GS Engineering & operational and have been handed over to Kuwait Construction, with GASCO worth approximately At 31 December, the Engineering & Construction Oil Company and we have commenced US$2.1 billion with a value to Petrofac Emirates backlog stood at US$6.2 billion (2008: US$2.4 billion), construction on the Mina Alhmadi refinery 40” of around US$1 billion. The 48-month lump-sum reflecting the high level of order intake during the year. pipeline project which is due for completion later contract with GASCO is for the construction of the this year fourth natural gas liquids (NGL) train at the Ruwais complex in Abu Dhabi. This is the first project to be awarded to Petrofac Emirates, our joint venture with Mubadala Petroleum Services LLC which was established in late 2008. 44 45 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Review of operations continued

Offshore Engineering & Operations Acquisitions Revenue Through Offshore Engineering & Operations we In early January 2010, we completed the acquisition of (US$ millions) provide operations, maintenance and brownfield Scotvalve Services Limited (Scotvalve), a mechanical Business review engineering services, predominantly in the UK services business, for an initial consideration of £3 07 08 09 Continental Shelf (UKCS) and principally on a million. A further consideration of up to £2 million will reimbursable basis, but often with incentive be payable in cash and/or shares over three years, income linked to the successful delivery of subject to achieving certain agreed performance 776.6 performance targets. Many of our operations targets. Scotvalve, which was founded in 1985, has 774.6 contracts are long-term (typically three to five around 40 employees located at a mechanical years) and in the case of the provision of Duty workshop in Aberdeen from which the company 626.7 Holder services are generally open-ended. provides the servicing and repair of oilfield pressure control equipment. In addition, Scotvalve has the We have seen an increase in tendering activity during capability to provide its services to the oil & gas sectors the year both in the UKCS and international markets. in the Middle East and North Africa, building upon our Whereas in prior years contracts were often ‘rolled- existing mechanical workshop facilities in the United over’ with the existing supplier, under similar terms and Arab Emirates and Saudi Arabia. conditions, customers will now often retender contracts on their expiry as they seek improved terms. We have Results been a beneficiary of the increase in tendering activity, Largely as a consequence of the strength of the US winning two key awards: Dollar against Sterling, reported revenue for the year decreased by 19.3% to US$626.7 million (2008: Net profit Apache engineering and construction, UK US$776.6 million) and revenue excluding ‘pass- (US$ millions) ■ In July 2009, we were pleased to announce the through’ revenue1 decreased by 21.4% to US$436.4 award of an engineering and construction contract million (2008: US$555.4 million). Approximately 90% 07 08 09 with Apache for the Forties field in the North Sea. of Offshore Engineering & Operations’ revenue is This represents the first time that we have secured generated in the UKCS and those revenues are a major brownfield engineering & construction generally denominated in Sterling. The US Dollar was 19.2 contract where we have not been the Duty Holder stronger against Sterling in 2009 compared to 2008 16.4 on the facilities. The contract is expected to (see the Financial Review on page 50 for a summary of generate revenue of approximately £25 million per the exchange rates), thereby having a significant impact

annum and run for at least three years. on the US Dollar value of reported revenues for the 12.8 Offshore Engineering & Operations reporting segment. BP maintenance, UK On a constant currency basis, revenue excluding ■ In November 2009, we secured a five-year contract pass-through revenue decreased by approximately 7%. to deliver integrated maintenance management support services, including the planning, co- Net profit was lower at US$12.8 million (2008: US$16.4 ordination and execution of maintenance activities, million), again reflecting the strengthening of the US for all of BP’s UK offshore assets and the onshore Dollar against Sterling as well as the more challenging Dimlington plant. This is the first time that BP has trading environment. On a constant currency basis, net separated out maintenance services in this way. profit was approximately 5% lower. Net margin on The contract is expected to generate revenue of Net profit margin* revenue excluding pass-through revenue was only approximately £20 million per annum. (%) marginally lower than the prior year at 2.9% (2008: 3.0%). In addition to securing these new awards, we have 07 08 09 Headcount was broadly unchanged at the end of 2009 been successful in extending a number of our at 4,100 (2008: 4,200). operations and maintenance contracts with oil majors 3.2 3.0

and independents, including an extension to our Duty 2.9 Backlog for Offshore Engineering & Operations Holder contract with Venture Production to May 2011. increased to US$1.6 billion at 31 December 2009 (2008: US$1.1 billion), in part due to exchange rate movements (on a constant currency basis at 31 December 2008, backlog was approximately US$1.3 billion), but principally due to new contract awards and extensions.

*On revenue excluding pass-through revenue

1 Pass-through revenue refers to the revenue recognised from low or zero margin third-party procurement services provided to customers. 46 47 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Review of operations continued

Engineering, Training Services and Production Results Revenue Solutions Reported revenue for the year decreased by 31.5% to (US$ millions) Three of our business units – Engineering US$349.7 million (2008: US$510.4 million) and revenue Business review Services, Training Services and Production excluding ‘pass-through’ revenue decreased by 32.0% 07 08 09 Solutions – are reported together as ‘Engineering, to US$309.7 million (2008: US$455.6 million). While a Training Services and Production Solutions’. proportion of the reporting segment’s revenues are non-US Dollar denominated and were therefore 510.4 Engineering Services predominantly provides early impacted by the strengthening of the US Dollar, the stage engineering studies such as conceptual studies decrease is primarily due to the decline in activity levels 450.2 or FEED studies. With the rapid fall in oil prices in the for Engineering Services and Training Services. second half of 2008 and a more uncertain economic outlook, a significant number of customers postponed Despite the reduction in activity in Engineering Services 349.7 such studies or re-phased work, resulting in a significant and Training Services and the strengthening of the US reduction in activity during 2009. While staff numbers Dollar, net profit was broadly in line with the prior year in our Woking engineering office have seen a modest at US$32.4 million (2008: US$33.1 million). Net margin reduction, we have seen a substantial reduction in the on revenue excluding pass-through revenue increased number of self-employed contractors, which has to 10.4% (2008: 7.3%), reflecting an increase in net reduced from more than 250 to around 50, as existing margins in Engineering Services, due to an increased projects have reached completion. Moving into 2010, contribution from the lower-cost Mumbai and Chennai we have been participating in more tendering activity, engineering offices, and in Production Solutions due which should signal a modest improvement in activity to good operational performance on the Dubai Net profit levels. We have substantially grown our Mumbai and Petroleum contract. (US$ millions) Chennai engineering offices, which predominantly support our Engineering & Construction activities. At 31 December 2009, headcount, which includes 07 08 09 long-term contractors, was broadly unchanged at In Training Services, we have seen a variation in activity 2,900 (2008: 3,000), although this includes an increase 33.1 levels in different regions, though, in general, there has in our engineering offices in Mumbai and Chennai of 32.4 been a reduction in technical and other training around 300 employees1, offset by a reduction in activities as customers have sought to defer self-employed contractors at our Woking engineering discretionary expenditure. We have refocused our office, predominantly due to lower activity levels. 24.3 business development activities to concentrate on high-value opportunities and we are seeing an Backlog for the Engineering, Training Services and improvement in the pipeline of opportunities. Production Solutions reporting segment was US$0.3 billion at year end (2008: US$0.5 billion) due principally Activity levels for Production Solutions, of which the to expected lower activity in Production Solutions’ well group’s service operator role for Dubai Petroleum is operations management business. a significant part, have remained robust. Some of our consultancy and technology businesses have experienced a reduction in activity during the year as customers have deferred discretionary expenditure, Net profit margin* though there have been indications of improvement (%) as the year has progressed. On our service operator contract with Dubai Petroleum, we delivered a 07 08 09 particularly good operational performance, exceeding -2% the year’s production targets agreed with our customer. 10.4 7.3 6.0

*On revenue excluding pass-through revenue

1 Engineering offices in Mumbai and Chennai are managed by Engineering Services, and headcount statistics are reported within the Engineering, Training Services and Production Solutions reporting segment; however, these offices principally provide engineering services to support Engineering & Construction. At 31 December 2009, the Mumbai and Chennai offices had a total of approximately 1,300 employees. 48 49 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Operating review

Review of operations continued

Energy Developments As operator (with a 30% interest), Energy Developments, Revenue FPF1 floating production facility, undeployed Where we can leverage our service capabilities along with its partners (Petronas, PetroVietnam and (US$ millions) During July 2009, Energy Developments acquired to mitigate risks and reduce costs, Energy Kuwait Foreign Petroleum Exploration Company a floating production facility, AHOO1 (subsequently Business review

Developments selectively co-invests alongside (KUFPEC)) drilled a number of successful near-field 07 08 09 renamed the FPF1), from Hess and Endeavour Energy the group’s partners in oil & gas upstream appraisal wells and is assessing a second phase of UK. The FPF1 had been deployed on the Hess developments and energy infrastructure to development of Block PM304. A FEED study for the operated Ivanhoe and Rob Roy Fields, in the UK North create additional value for the group. second phase has been commissioned and a field Sea, since 1989 with the Renee and Rubie Fields development programme to develop the near-field 248.7 produced over it since 1999. The vessel, weighing During the year, good progress was made on Energy opportunities is expected to be submitted for approval approximately 17,000 tonnes, has a processing Developments’ existing portfolio of operational assets during the second half of 2010. capacity of 70,000 bpd of oil and 42.5 mmscfd of (Don Southwest, West Don, Chergui, Cendor, Ohanet gas with water injection capability of 72,000 bpd and and the Kyrgyz Petroleum Company refinery): Ohanet, Algeria treatment of 75,000 bpd. The vessel will remain in Energy Developments, in a joint venture with BHP 153.4 dry dock at the McNulty offshore facility in Newcastle- Don Southwest and West Don, UKCS Billiton (as joint venture operator), Japan Ohanet Oil & 132.8 upon-Tyne, while options for its upgrade, modification The highlight of the first half was the commencement Gas Co, and Woodside Energy (Algeria), has invested and redeployment on fields, including those where of production from both the Don Southwest and West in excess of US$100 million for a 10% share in a Risk Energy Developments has or can take an interest, Don fields in the UK North Sea. This represents a very Service Contract (RSC) with Sonatrach, Algeria’s are considered. significant milestone in the development and was national oil company. Through Engineering & achieved in less than a year from field development Construction, we undertook the EPC contract for the Permit NT/P68, Australia programme approval. The first of two planned gas processing facilities in joint venture with ABB During the second half of the year, Energy Developments production wells on West Don came on-stream in late Lummus and were responsible for part of the on-site EBITDA signed an agreement with MEO Australia Limited April 2009, followed by two production wells on Don commissioning works. First gas for export began (US$ millions) to exit its interest in Permit NT/P68 in Australia. No Southwest in late June 2009, although one of the wells flowing in late 2003. consideration was paid in relation to the transaction was sidetracked in early 2010 after the original well 07 08 09 and the carrying value of the asset (US$4.8 million) failed to flow significant amounts of oil. The sidetracked The plant continued to perform well in 2009. Overall was written-off during the second half of 2009. well commenced production in early March 2010, production was somewhat lower than in 2008 at an which facilitated tie-in and commencement of the two average of approximately 123,100 bpd of oil equivalent 160.9 Results Don Southwest water injection wells. The second (2008: 147,500 bpd of oil equivalent), due in part to a Despite considerably lower oil prices in 2009 production well on West Don was brought on-stream in planned shutdown in late 2009. On average, we earned compared to the prior year, Energy Developments’ August 2009 and the water injection well was brought our share of the monthly liquids production by the 15th revenue increased to US$248.7 million (2008: on-stream in September 2009. day of the month (2008: 7th), reflecting lower average US$153.4 million), due to commencement of exports oil & gas prices1 from the West Don and Don Southwest fields during and, to a lesser extent, lower average 89.1

Total production for 2009 for the Don fields was 3.1 production rates. It is expected that we will earn our 82.8 the year and a full year’s contribution from the Chergui million barrels, with our share totalling 1.2 million defined return by November 2011, at which point the gas plant, which commenced exports in August 2008. barrels. As originally planned, export switched to a RSC contract will expire. permanent pipeline export route over Lundin’s Thistle Net profit for the year was higher at US$46.2 million platform in early March 2010. The new system is Chergui field, Tunisia (2008: US$21.9 million). Adjusting for current and prior expected to reduce interruption and improve In Tunisia, the Chergui gas plant (in which Energy year non-recurring items, net profit increased to production stability and export operations. Developments has a 45% operating interest) produced US$49.9 million (2008: US$38.5 million), reflecting an average of 26.5 million standard cubic feet per day Net profit commencement of exports from the West Don and During the drilling of the Don Southwest water injection (mmscfd) of gas during the year (2008, from August to (US$ millions) Don Southwest fields during the year and a full year’s wells, two cost-effective pilot holes were drilled into December: 24.3 mmscfd), which is in excess of the contribution from the Chergui gas plant, partially offset adjacent reservoir structures, both of which original nameplate design capacity of 20 mmscfd 07 08 09 by lower oil & gas prices. Current and prior year encountered oil. One of the pilot holes was drilled into following commissioning of a refrigeration unit and non-recurring adjustments were as follows: an area known as the ‘Horst’, which has excellent debottlenecking of the plant. Engineering and reservoir quality with high oil saturations. The other procurement activities have commenced in relation to Current and prior year: pilot hole was drilled into Area H, which revealed a the tie-in of a third well, which should see an increase ■ an impairment provision of US$3.7 million (US$4.8 60-feet oil column in the Brent formation. in the capacity of the plant. 46.2 million less a tax credit of US$1.1 million) against

33.4 Energy Developments’ investment in Permit NT/ At 31 December 2009, Energy Developments’ estimate KPC refinery, Kyrgyzstan P68 (2008: US$3.5 million (US$5.0 million less a of proven and probable reserves (net entitlement basis) Energy Developments owns a 50% share in the Kyrgyz tax credit of US$1.5 million)) for the Don Southwest and West Don fields is 19.5 Petroleum Company (KPC) which is engaged in the million barrels (2008: 22.2 million barrels), including the refining of crude oil and the marketing of oil products 21.9 Prior year only: Area 5 Horst. The net downward revision is due to from the KPC refinery. Offshore Engineering & ■ a US$8.2 million charge in relation to a currency production experience to date on both fields. Operations operates the refinery on behalf of the joint hedge for capital expenditure on the Don area venture partners on a reimbursable basis. During 2009, development, which, while being an economic Cendor PM304, Malaysia the 10,000 bpd capacity refinery performed in line with hedge, was deemed an ineffective cash flow The Cendor field, in Block PM304, offshore Peninsular expectations, producing an average of approximately hedge under International Accounting Standard 39 Malaysia, produced an average of 14,400 bpd of 2,000 bpd (2008: 2,800 bpd) of principally gasoline, ‘Financial Instruments: Recognition and oil over the year (2008: 14,700 bpd) and achieved diesel and fuel oil. The decrease in throughput was due Measurement’ production uptime of over 99%. Towards the end of to lower demand. 2009, Offshore Engineering & Operations installed ■ costs of US$4.9 million (US$9.8 million less a tax a Caltec WELLCOM multiphase boosting unit on credit of US$4.9 million) in relation to the one of the wells, which has subsequently seen a unsuccessful Prospero well in the Greater Don area marked increase in output. Further units are now under consideration. 1 For example, Brent, a benchmark crude oil, averaged US$62 An analysis of Energy Developments’ oil & gas reserve per barrel for 2009 (2008: US$97 per barrel). entitlements is presented on page 143. 50 51 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Financial review

Financial review

Revenue Net profit Revenue Interest Earnings per share Group revenue increased by 9.8% to US$3,655.4 Net profit for the year increased to US$363.0 million (US$ millions) Net finance income for the year was lower at US$6.4 Fully diluted earnings per share increased to 103.19 million (2008: US$3,329.5 million) due to strong (2008: US$265.0 million). million (2008: US$10.9 million, excluding finance cents per share (2008: 77.11 cents), an increase of Business review growth in Engineering & Construction and Energy 07 08 09 charges in relation to hedges deemed ineffective under 33.8%, in line with the group’s increase in profit for Developments, offset by a decrease in Offshore Profit for the year attributable to Petrofac Limited IAS 39) as the effect of higher average net cash the year attributable to Petrofac Limited shareholders. Engineering & Operations and Engineering, Training shareholders increased to US$353.6 million, an balances during 2009 was more than offset by lower Services and Production Solutions. Strong growth increase of 33.4%, driven primarily by strong growth interest rates. Operating cash flow and liquidity in Engineering & Construction, which accounted for in Engineering & Construction and strong growth and 3,655 The net cash generated from operations was approximately two-thirds of the group’s revenue, was improvement in net margin in Energy Developments, 3,330 Taxation US$1,276.3 million (2008, as restated: US$586.6 as a result of high levels of activity on ongoing lump- following commencement of production from the Don An analysis of the income tax charge is set out in note million), representing 228.3% of EBITDA (2008, as sum EPC contracts, including new projects awarded fields and a full year’s contribution from the Chergui 6 to the financial statements. The income tax charge restated: 140.0%). The increase in net cash inflows during the year. The increase in revenues in Energy gas plant. The net margin for the group increased to 2,440 as a percentage of profit before tax in 2009 was was due principally to advances received from Developments was as a result of commencement 9.7% (2008: 8.0%), broadly in line with the increase substantially lower at 18.9% (2008: 26.1%). The customers and billings in excess of cost and estimated of exports from the Don fields and a full year’s in the group’s operating margin. decrease in the effective tax rate compared to the earnings in relation to Engineering & Construction contribution from the Chergui gas plant, which prior year is due principally to: contracts secured during 2009. commenced exports in August 2008. The decrease EBITDA in reported revenues in Offshore Engineering & EBITDA increased by 33.4% to US$559.0 million (2008: ■ a lower than average tax charge in Energy At 31 December 2009, the group’s net cash had Operations was primarily as a result of the US$419.0 million), representing an EBITDA margin of Developments, which fully utilised the tax increased to US$1,300.1 million (2008: US$551.8 strengthening of the US Dollar, as the majority of 15.3% (2008: 12.6%). The increase in margin was due allowances available to it during 2009, million) as a result of: revenues are denominated in Sterling, while the to growth in the higher margin Energy Developments including claiming a ring-fenced expenditure decrease in Engineering, Training Services and reporting segment. Energy Developments’ share of Net profit* supplement available to operators within the ■ operating profits generated of US$576 million Production Solutions was principally as a result of group EBITDA, excluding the effect of corporate, (US$ millions) UK Continental Shelf ■ net working capital inflows of US$700 million, a decrease in activity levels for Engineering Services consolidation and elimination adjustments, increased to ■ a shift in profitability within Engineering, Training including US$439 million of advance payments and Training Services. 28.2% (2008: 20.8%), while Engineering & Construction 07 08 09 Services and Production Solutions from the UK received in relation to Engineering & Construction was broadly consistent with the prior year at 60.8% to overseas, including increased profitability in awards less US$81 million of cash outflows in Operating profit (2008: 59.0%), and Offshore Engineering & Operations Production Solutions, where a zero tax rate applies relation to the growth of work in progress on other Group operating profit increased by 24.1% to US$441.2 and Engineering, Training Services and Production 353.6 to the business unit’s largest contract with Dubai Engineering & Construction projects million (2008: US$355.6 million) and operating margins Solutions were lower at 3.5% (2008: 5.8%) and 7.5% Petroleum, and increased to 12.1% (2008: 10.7%), reflecting the (2008: 14.4%), respectively, following a decrease in ■ taxes paid of over US$87 million ■

increased operating profit contribution from the higher reported EBITDA. 265.0 confirmation during the year of the applicability of ■ investing activities of US$343 million, including margin Energy Developments reporting segment. a lower tax rate in relation to the group’s projects, US$221 million in relation to capital expenditure Engineering & Construction operating profit increased Backlog principally in Engineering & Construction, in Oman on Energy Developments’ portfolio of assets, by 33.3% to US$321.6 million (2008: US$241.2 million) The group’s combined backlog at the end of 2009 188.7 predominantly on the Don fields, US$29 million on due to strong growth in activity levels and continued was approximately US$8.1 billion (2008: US$4.0 billion), Cendor PM304 near-field development and US$26 good operational performance. Energy Developments reflecting our high level of order intake during year, million on the acquisition of the FPF1 floating operating profit increased by 49.7% to US$77.4 million particularly in the Engineering & Construction production facility (2008: US$51.7 million) following commencement of reporting segment. production form the Don fields and a full year’s ■ financing activities, in particular, payment of the contribution from the Chergui gas plant. Operating Exchange rates 2008 final dividend and 2009 interim dividend profit in Offshore Engineering & Operations decreased Our reporting currency is US Dollars. The US Dollar EBITDA totalling approximately US$99 million. by 23.1% to US$17.8 million (2008: US$23.2 million) was considerably stronger against Sterling in 2009 and (US$ millions) due principally to the strengthening of the US Dollar, there was therefore a significant impact on the reported Net cash (US$ millions) 2009 2008 while Engineering, Training Services and Production results of our UK trading activities, principally within 07 08 09 Cash and short-term deposits 1,417.4 694.4 Solutions decreased by 28.5% to US$34.5 million Offshore Engineering & Operations. The impact on the Interest-bearing loans and borrowings (117.3) (142.6) (2008: US$48.3 million) due to the decrease in activity Offshore Engineering & Operations reporting segment Net cash 1,300.1 551.8 levels for Engineering Services and Training Services, is discussed further on page 44. The table below 559.0 partly offset by an improvement in the operating sets out the average and year-end exchange rates margin from the lower-cost Mumbai and Chennai for the US Dollar and Sterling for the years ended The group decreased its levels of interest-bearing loans and borrowings to US$117.3 million (2008: US$142.6 engineering offices, and in Production Solutions 31 December 2009 and 2008 as used by the group million) following repayment of an overdraft facility previously utilised by the Offshore Engineering & Operations 419.0 due to good operational performance on the Dubai for financial reporting purposes. and Training Services business units. As a result of lower interest-bearing loans and borrowings and higher cash Petroleum contract. and short-term deposits, the group’s gross gearing ratio fell to 13.2% (2008: 25.5%).

301.3 Gearing ratio US$ millions (unless otherwise stated) 2009 2008 Interest-bearing loans and borrowings (A) 117.3 142.6 Financial reporting exchange rates Cash and short-term deposits (B) 1,417.4 694.4 US$/Sterling 2009 2008 Net cash/(debt) (C = B – A) 1,300.1 551.8 Average rate for the year 1.56 1.85 Total net assets (D) 890.5 558.8

Year-end rate 1.62 1.46 *Attributable to Gross gearing ratio (A/D) 13.2% 25.5% Petrofac Limited Net gearing ratio (C/D) Net cash Net cash Shareholders position position 52 53 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Financial review The year saw us take an important step in growing Corporate social our reputation as an ethical partner committed to continued upholding the highest standards of behaviour. In January, we signed up to the United Nations Global responsibility Compact (UNGC). This agreement is a voluntary framework for groups such as Petrofac that are The group’s total gross borrowings before associated Shareholders’ funds committed to aligning their businesses to ten principles debt acquisition costs at the end of 2009 were Total equity at 31 December 2009 was US$906.8 in the areas of human rights, labour, the environment US$123.1 million (2008: US$148.0 million), of which million (2008: US$559.0 million). The main elements and anti-corruption. 51.0% was denominated in US Dollars (2008: 45.9%) of the net movement were the increase in retained and 49.0% was denominated in Sterling (2008: 51.8%) earnings for the year of US$256.6 million, a gain on The spirit of the UNGC is reflected in our policies (in 2008 the balance of 2.3% was denominated in foreign currency translation of US$15.1 million and and Code of Business Conduct available online at Kuwaiti Dinars). the net change in the fair value of derivatives of www.petrofac.com/responsibility.html. US$29.2 million. As detailed in note 31 to the financial statements, the We are committed to setting the highest standards group maintained a balanced borrowing profile with Return on capital employed in all matters relating to Health, Safety, Security, 47.2% of borrowings maturing within one year and The group’s return on capital employed for the year Environment and Integrity Assurance (HSSEIA) and to 52.8% maturing between one and five years (2008: ended 31 December 2009 was 47.7% (2008: 52.7%). be acknowledged as experts in delivering high level 36.8% and 63.2%). The borrowings repayable within operational safety performance across our diverse one year include US$46.6 million of bank overdrafts Dividends workforces in all our operational environments. responsibility  Corporate social and revolving credit facilities (representing 37.9% of The Company proposes a final dividend of 25.10 cents total gross borrowings), which are expected to be per share for the year ended 31 December 2009 (2008: While our core values and vision are unchanged, renewed during 2010 in the normal course of business 17.90 cents), which, if approved, will be paid to our policies for health & safety, security, environment, (2008: US$45.3 million and 30.6% of total gross shareholders on 21 May 2010 provided they were on quality and integrity assurance were revised in 2009 borrowings). the register on 23 April 2010. Shareholders who have to align with the new organisation structure and now not elected (before 5 March 2010) to receive dividends provide greater detail. These policies are approved at Prior to 31 December 2009, the group’s policy was to in US Dollars will receive a Sterling equivalent of 16.69 Board level and are publicly available on our website at hedge between 60% and 80% of interest payable on pence per share. http://www.petrofac.com/Responsibility.html as well as floating rate interest-bearing loans and borrowings. On being widely published within the business. 31 December 2009, a number of the group’s hedging instruments matured and a decision was taken to Each Petrofac business unit has a detailed revise the group’s hedging policy to give the group management system through which the group policies flexibility to repay borrowing should it so choose. As are implemented. These are subject to internal audit such, none of the group’s borrowings were hedged at and also to external independent verification in 31 December 2009 (2008: 65.1%). An analysis of the Forward-looking statements accordance with international standards such as derivative instruments used by the group to hedge its The Business Review (pages 18 to 52) contains ISO 9001, ISO 14001 and OHSAS 18001. interest rate and other exposures is contained in note forward-looking statements with respect to the financial 31 to the financial statements. condition, results, and operations of the group. By their nature, forward-looking statements involve a number of None of the Company’s subsidiaries are subject risks, uncertainties or assumptions that could cause to any material restrictions on their ability to transfer actual results or events to differ materially from those funds in the form of cash dividends, loans or advances expressed or implied by the forward-looking to the Company. statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial Capital expenditure effects of the plans and events described herein. Capital expenditure on property, plant and Forward-looking statements contained in the Business equipment during the year was US$375.4 million Review regarding past trends or activities should not (2008: US$255.5 million). The principal elements be taken as representation that such trends or activities of capital expenditure were: will continue in the future. Petrofac Limited undertakes no obligation to update the forward-looking statements ■ additions to oil & gas assets in relation to contained in this review or any other forward-looking development expenditure on Energy statements made. Developments’ interest in the Don assets The success of our business is of US$274.1 million inextricably linked to the welfare ■ Energy Developments’ acquisition of the FPF1 of our people and the communities floating production facility of US$26.4 million where we live and work. Our long- Capital expenditure on intangible oil & gas assets during the year was US$29.2 million (2008: US$37.0 term performance is dependent million) in respect of capitalised expenditure on near- upon their understanding, goodwill field appraisal wells in relation to Energy Developments’ interest in Block PM304, offshore Malaysia. and active support. 54 55 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Health, safety and security In terms of occupational safety performance, our Vehicle safety We will never knowingly compromise the health and 2009 statistics show a continued good performance. Accidents involving vehicles still remain one of the most Healthy. safety of individuals or their communities. In practice, In 2009, our employees and subcontractors completed frequent causes of fatalities in our industry. this commitment is expressed through two separate 67 million man-hours (2008: 67 million) of activity. strands of activity: firstly, we work hard to prevent In addition to a code of conduct for drivers and occupational safety risks to individuals which might We report our performance according to the passengers travelling in company vehicles, driving Safer. result in personal injury; and secondly through a strong Occupational Safety and Health Administration rules safely is one of our eight Golden Rules of Safety which emphasis on the technical integrity of the plants we and in 2009 our Recordable Incident Frequency Rate apply to all employees, wherever they work. In order to 67 million design, build and operate, we strive to minimise the risk was 0.38 per 200,000 man-hours (2008: 0.32). Our maintain focus on this important area, we report driving man-hours Secure. of major accidents such as fire and explosion which Lost Time Injury Frequency Rate in 2009 was 0.02 statistics separately from other incidents. In 2009, worked in 2009 can cause large numbers of fatalities and widespread (2008: 0.03). Although these figures compare well vehicles travelled more than 30 million km between plant damage. Both require constant management with industry published data, our target remains to locations or on project sites. That is equivalent to attention, vigilance and leadership. achieve zero LTIs. driving 700 times around the world. The Driving Incident Frequency Rate (major or serious vehicle All incidents and accidents are investigated and actions incidents) in 2009 was 0.29 incidents per million km are followed up using a group-wide incident reporting driven (2008: 0.22). tool. This tool also ensures that any serious incidents, together with the relevant outcomes, are reported While none of the recorded incidents resulted in directly to senior management. During the year, significant injuries in 2009, driving continues to be a 23 (2008: 17) Major Potential Incidents were recorded. significant risk area for the business and will, therefore, responsibility  Corporate social ‘Potential’ is the key word here – the criteria for continue to receive management attention in the reporting is the potential for harm, so although very coming year. few of these incidents actually resulted in personal injury or damage, all were reviewed in great detail. Staff health and welfare Maintaining high standards of health and welfare Petrofac historic safety performance among our people is essential to the smooth operation We drove of the business. We have measures in place to assess 05 06 07 08 09 30 million km the health and fitness of senior management in all or 700 times business units and to provide comprehensive medical around the

0.55 assessments for those at risk. This particularly applies world to employees involved in overseas and offshore assignments. 0.41

0.38 Health suites manned by medical professionals

0.35 are available at the majority of our offices and 0.32 operational sites. Where necessary occupational health surveillance measures are also put in place.

Security

Incident rate/200,000 man-hours Our people frequently work in remote and potentially dangerous environments where security can often be 0.07 0.02 0.03 0.06 0.07 a real challenge. Recordable Incident Frequency Rate Lost Time Injury Frequency Rate At Petrofac we are fully committed to creating a safe working environment for everyone. This commitment Health suites was demonstrated further during the year by the are available at A Group Incident Review Board, comprising senior appointment of a Group Head of Security to oversee the majority of managers under the chairmanship of the Chief travel and security plans and to advise and support all our offices and Operating Officer, meets quarterly to review any serious employees in this respect. operational sites incidents in detail. Any lessons that can be learnt are then shared across the group and with the wider Security matters are also included as part of the risk industry as appropriate. review process performed when we consider working on a new project or in a new country. All potential security issues for projects and locations are assessed in the early stages of the planning process. 56 57 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Environment We held our second group-wide, month-long Work is currently under way to establish the position A high level of environmental performance is an environment initiative in November 2009, encouraging of the group’s UK activities under the Government’s Recycle. important priority for the group. We use a systematic staff and their families to ‘be part of the solution’. A Carbon Reduction Commitment Energy Efficiency approach to environmental management to ensure that wide range of events and activities took place at offices Scheme which will commence implementation we conduct operations in a way that minimises their and project locations around the world. During the during 2010. environmental impact. This approach is applied across campaign a total of 1,100 trees were planted in various Reduce. our operations regardless of the level of regulatory or locations, including Aberdeen, Kyrgyzstan and Sharjah, Integrity assurance Recycle other requirements in the countries where we operate. adding to the 1,000 trees planted during the 2008 It is our responsibility to safeguard everyone associated campaign. In addition, our inaugural children’s art with operations which are designed, constructed, Initiatives The ISO 14001 international standard which is – Distributed Educate. independently audited, covers 98% of the work competition, open to our employees’ families, received operated, managed or supported by Petrofac. unwanted clothing we do, calculated by man-hours expended. around 300 entries and was a great way of taking the to charities environment message to the younger generation. Managing and operating mature assets in harsh – Recycled products Planet Petrofac conditions can present particular challenges. We displayed in offices have developed a comprehensive approach to Asset – Collection of Replace. Launched in late 2008, Planet Petrofac is an internal Emissions trading and reporting mobile phones, campaign targeted at raising awareness of environment As stated in last year’s Annual Report, we have Integrity which ensures appropriate focus and glasses and issues among our people. The campaign seeks to established independently verified baselines for management attention. Every month through the Asset batteries for address key environmental activities in the context CO2 emissions in order that we can monitor our Integrity Review Board (AIRB), established in 2008, we recycling of our business, but it also embraces employees’ carbon footprint. review Asset Integrity using a range of indicators with responsibilities and opportunities as individual citizens. operations managers from all of our operated sites In 2009 we emitted 208,100 tonnes (2008: 184,844 across the world. This provides a forum for peer review responsibility  Corporate social tonnes) of CO2. This increase reflects increased activity and support as well as a clear line-of-sight for senior in Engineering & Construction site work, the first full management and forms the basis for onward reporting year of Chergui operations and the commencement of to the Board. production from the Don fields. Our CO2 emissions are largely due to emissions from vehicles and construction During the year we performed detailed inspections and activities together with fuel and energy usage at project audits of the Heather and Thistle platforms in the North Reduce and office locations and necessary gas flaring at Sea, our Southern North Sea operations (including the Initiatives production facilities. The figures include our equity Bacton terminal) and the Cendor MOPU in Malaysia – Issued reusable ownership activities (on a net basis) but do not include with the findings reported to the AIRB. These detailed bags – 400 reusable locations where we manage facilities on behalf of our reviews are also provided to the relevant customers as water bottles customers. Petrofac carries out all the necessary structured and thorough evidence of the way integrity donated to UK monitoring and data collection to allow verified is managed on their assets. school information relating to these facilities to be reported – Cycle to work campaign by our customers. Industry involvement – Monitoring our We contribute experience and expertise to our industry carbon footprint Petrofac also performs monitoring for all operated assets in many ways. as required under the Oslo-Paris (OSPAR) Convention for the protection of the North Sea. This involves We are active supporters of Step Change, the UK oil monitoring all discharges to the sea for hydrocarbons, & gas industry safety initiative, where we participate in heavy metal and radiation contamination. In addition the Leadership Team, Asset Integrity Steering Group to carbon dioxide, emissions to atmosphere are and the Human Factors Working Group. monitored for sulphur dioxide, oxides of nitrogen and volatile organic carbons. All wastes leaving operated Our Group Director of HSSEIA is a member of the facilities are segregated and reported by category. industry’s Helicopter Task Force, which was Educate All chemicals in use in the North Sea are certified for established during 2009 following the loss of 16 Initiatives use under the Offshore Chemicals Regulations. The lives in a North Sea helicopter accident. – Presentations to use and discharge of these chemicals is monitored local schools and reported annually. The chemicals in use are In addition, we share data on safety and integrity – Environmental reviewed annually and where a more environmentally management with our peers, helping to raise beach walk – Lunchtime friendly alternative is identified, a plan to substitute the standards across our industry. lectures chemical is put in place. – Environmental art Emergency response competition In the UK, Petrofac Energy Development Limited Our Emergency Response and Crisis Management (PEDL) partakes in the emissions trading and reporting procedures are subjected to rigorous testing through scheme for operations on the Don fields. This is regular exercises. subject to third-party verification to allow carbon dioxide trading within the Emissions Trading Scheme. Beyond our own operations, we also play a wider role PEDL is partaking as an operator for the first time in in maintaining the oil & gas industry’s capability to deal 2009 as a new entrant. with onshore and offshore emergencies. Through our Training Services business Petrofac is the leading Details of emissions from the PEDL assets and those provider of emergency response training and, through owned by UK customers are publically available the Emergency Response Service Centre (ERSC) in Replace through the Environmental Report which is published Aberdeen, we provide a 24-hour integrated response on the Department of Energy and Climate Change capability to a range of customers, every day of Initiatives – 1,100 trees website https://www.og.decc.gov.uk. the year. planted – Wildlife Where Petrofac operates facilities outside the UK, conservation statutory reporting is carried out in accordance with – Beach clean-up local regulations with additional internal reporting of relevant data which is not statutory. 58 59 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Strategy It is essential our employees, regardless of where or Furthermore, and also in support of young talent, we Petrofac has continued through 2009 to push forward when they join the organisation, ‘experience’ Petrofac launched the Petrofac Royal Academy of Engineering People are in its aim of being a best-in-class employer within both in similar and consistent ways to ensure that our values Fellowship Programme in September 2009. As part the geographical boundaries and business sectors in and behaviours are clearly recognised and displayed. of our £250,000 pledge, up to 18 of the UK’s top which it operates. As this global approach becomes more visible we will engineering students will have the opportunity to secure continue to value the differences that do and should a year-long Fellowship through a Masters programme, our most The reorganisation put in place at the start of 2009 exist to ensure our business operates effectively in the before embarking on their chosen career path. During has helped enable us to continue to work across our local markets in which they operate. the course of the next three years the successful business to strengthen our organisation structure, Fellows will be supported by technical mentors from valuable processes, systems and behaviours framework. Our focus in 2010 will be to further develop the work our business. Petrofac is also providing case study 11,700 Developing the distinctive Petrofac culture is a major we commenced in 2009 in the key areas of resourcing materials and placements within our UK operations. Employees in objective for our leadership and HR function and efforts and graduate recruitment, talent management and Petrofac will continue in 2010 to align these key elements to succession planning, performance management and One Petrofac asset. support the business. employee communications. The year also saw us further enhance the way in which we maintain our corporate culture, a key differentiator 2009 review for the group. We have continued to implement During the period our employee headcount increased initiatives to help our employees both identify with from 11,100 at the end of 2008 to 11,700 at the end this culture and play a key role in it. During 2009, for of 2009 which has been achieved mainly through example, we introduced a common induction process organic growth. that incorporates information that every new employee responsibility  Corporate social must receive, regardless of where they start with the Supporting talent company. As part of the induction initiative, a DVD was While the overall headcount has increased, we produced, explaining our approach to people and continue to focus on identifying and developing safety as well as outlining our future business strategy. individuals within the business with the potential to fulfil both leadership and more technical roles. This Developing our people group-wide review of talent supports our dual strategy Consistent, high-quality training and development is of both continuing to attract and develop individuals central to the group’s progress. Our training capability 91%* of with significant potential whilst also identifying, was enhanced in 2009 by the introduction of a employees fully developing and retaining our existing talent in the comprehensive e-learning system. Initially piloted in support our business to meet the challenges in the years to come. our E&C business, this has now been successfully values In 2010 we will continue to add to our Petrofac launched in an additional seven locations worldwide. leadership development programmes to ensure The system will continue to be rolled out through 2010. that we continue to deepen our bench strength and enhance our succession planning. The new e-learning system has already demonstrated its worth in several ways, notably by building employee For a number of years we have been attracting the understanding of the group’s Code of Business brightest graduate talent to Petrofac and 2009 was Conduct. The Code was distributed to all employees no exception, with over 130 new graduates joining the during 2009 and by the end of December 2009 more organisation across our geographies and operations. than 4,000 employees had completed the e-learning modules which assess knowledge and understanding 4,000 of this important document. Employees who completed COBC e-learning in 2009

*91% of total respondents to PetroVoices survey 2009 60 61 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Our reputation depends upon the provision of Share ownership competent people to work on our projects. The We have continued to introduce reward and incentive majority of our workforce is now assessed against measures to our employees which ensure they are We continue technical and behavioural competences and we plan to aligned with the group’s goals and share in our success. continue to focus on this critical activity. As an example At the end of 2009, approximately 28% of employees of this we performed a major review of engineering were participating in at least one of our share incentive competence in our Indian locations to ensure that we schemes. Further details can be found in the to focus on continue to provide the high-quality service expected Remuneration Report, on pages 80 to 82 of this Report. by our customers. Communications improving our Employee survey We continue to focus on improving our communications In 2009 we carried out our second independent activities and during the year launched a global group-wide employee survey, known as PetroVoices. intranet, PetroNet. This has created a single platform The aim is to gain insight into employee perceptions on for communicating across the group, enabling our communications a wide range of matters. More than 50% of those invited people to interact with each other and with the group to participate took part in the survey and overall the on a variety of topics. results were positive, showing significant improvement since 2007 across all categories, including work A structured communications programme was launched activities. conditions and safety, leadership and engagement. around Project Tempo, the group’s Enterprise Resource Planning initiative, in order to ensure that responsibility  Corporate social The group’s growth and success over the last two both the user groups and the wider business years was highlighted by the findings, with 91% of understand the different stages of the implementation respondents saying they fully support our values. The process and the impact this will have on the processes feedback on employee development and fundamental and systems currently in use. perceptions of the Company was also encouraging. Measured by questions on our corporate image, Another important initiative was the communications culture and values, the figures have improved by programme put in place around the organisational over 8% since 2007 and we are committed to building changes implemented at the start of the year. This on these results: the agreed areas of focus for 2010 programme included a brand project which resulted are communications, employee development and in the creation of separate but linked brand identities performance management. Each local business unit for each of the seven business units in the group. is also developing its own specific action plan within the context of the overall group aims. A corporate DVD communicating the group’s core capabilities was produced during 2009 and is available Following the launch of the revised Code of Business to view on www.petrofac.com. In addition the quarterly Conduct (COBC) during the second half of 2009, we magazine, Petrofacts, continues to provide information were pleased to note that 92% of respondents were on the latest news and developments from within the aware of the Code, up from 81% in 2007. We will group to all employees and external stakeholders. continue to work to raise this figure towards 100%. Our second Picture Petrofac competition was held during 2009 and received an enthusiastic response from employees, attracting almost 2,000 photographs. The photographs of the 13 finalists feature on our 2010 calendar, with each finalist also receiving a digital SLR camera. The winning entry was submitted by Hennie Bester, who said: “Competitive events, whatever their format, certainly increase the levels of engagement and collaboration in all our teams – even those not actively participating. I look forward to taking part in next year’s competition.” 62 63 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate social responsibility

Community In collaboration with our customer, we have also The office in Chennai is a great benefactor to local For 2009, our community support continued to be opened two further schools in the western Sahara schools and orphanages. With support from the Petrofac focused on education in the communities close to Desert in Egypt. Each school features a large company, employees have helped the community in employees Making have provided our operations. This is an area where experience tells classroom for around 45 children aged 4–13 together many ways, including providing electrical equipment with living accommodation for two resident teachers. to a school and rice to a children’s home, renovating electrical us we are able to make a significant and long-term equipment and impact which can make a demonstrable difference This latest project, which is providing valuable a kitchen for a welfare trust and providing support whiteboards to a real to local people. education to local Bedouin children, brings the total to victims of the floods. schools, rice to number of such schools we have supported in the a children’s The educational initiatives we support are many and desert to four. In Malaysia, our team operated a successful book home, air diverse, ranging from scholarships for individuals to donation programme with Sekolah Kebangsaan Taman conditioning difference. units for a extensive financial support for entire schools. The In 2008, a needs analysis with the local authorities Setiawangsa school in Kuala Lumpur, with many of the examples you see here represent a small selection showed that children and teachers at schools in the books donated from London. Local employees also school library and support to of projects we have undertaken during 2009. In Salah region of Algeria were suffering from constant raised money to purchase air conditioning units for the chalk dust created by the use of old-fashioned school library. victims of floods North Africa blackboards. With our help, each classroom in all 38 In Sudan we have completed the construction of 60 local schools has now been equipped with a We also continued to operate a scholarship non-formal schools in partnership with international whiteboard – amounting to 341 whiteboards in total. programme alongside the Kyrgyz Petroleum Company NGO, BRAC UK. This project was established in 2008 in Kyrgyzstan. With our help, eight students are now and the schools have now opened their doors to Our community activities in Tunisia have included able to undertake full-time academic courses. around 1,800 children aged 8–14. organising a series of regular visits to our facilities at responsibility  Corporate social Chergui for primary school children. This programme UK gives the children an early introduction to our industry Our teams in Woking have continued to support the and provides us with the opportunity to emphasise the educational charity Surrey SATRO (Science and importance of safety and protection of the environment. Technology Regional Organisation) and 11 of our 60 engineers are now SATRO science ambassadors. Each Middle East ambassador contributes two and a half days during the Operationally, we are very active in Syria with major year, usually at a local school. projects at both Jihar and Ebla. As the financial year Schools built in Sudan and closed, we were in the advanced stages of a process In Scotland, where we have long-established educating which we hope will lead to Petrofac providing funding relationships with local communities, we again supported 1,800 children for a specialist training centre. This will underline our many initiatives. These included a road safety scheme commitment to the health, safety and operational for school children as well as the establishment of a efficiency of the local workforce. new partnership with Charleston Primary School. Many children from Charleston will move on to join Kincorth In the United Arab Emirates, we continued to offer Academy, a secondary school which we have supported financial assistance to less-advantaged students for many years. In common with their colleagues in wishing to attend the American University of Sharjah Woking, the Scotland team has been keen to encourage (AUS), and were also proud to establish ‘The Petrofac an interest in engineering. During the year they offered Research Chair in renewable energy’. We provided a their time and practical advice to develop a local Dhs15 million endowed donation to fund the position branch of the Young Engineers club and also organised from which AUS will establish a progressive research a number of school visits to our facilities, so that programme in renewable energy, bringing together its youngsters could gain insight into the oil & gas industry. most talented resources. We also made a Dhs1 million grant to the Higher Colleges of Technology (HCT) in Abu Community support Dhabi to support the continued development of young Our support for local communities extends beyond US$ millions UAE nationals and enhance HCT’s programme offerings education. During 2009, we continued to provide Donated to to meet the needs of both students and industry. assistance to a variety of charitable and sporting local schools initiatives, further strengthening the bonds which exist and funding for Our community support in the UAE also extended between our operations and their local communities. the Petrofac beyond education last year, with many employees Full details of these initiatives can be found on our Research Chair in renewable making significant contributions to relief funds for the website at www.petrofac.com/responsibility.html. energy natural disasters in Indonesia, the Philippines and India.

Asia In India, both our key offices have long histories of supporting educational initiatives. During the year, the Mumbai team continued to offer scholarship programmes at local schools and also funded a much-needed extension to a tribal school near Khopoli. We also worked with the Arvind Ghanbhir secondary school on a book donation programme, which was run from our London office. 64 65 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ information

Directors’ information

1 2 3 4 5 6 7 8 9

1 Rodney Chase 4 Maroun Semaan 6 Keith Roberts 9 Rijnhard van Tets Non-executive Chairman c Group Chief Operating Officer Chief Financial Officer Non-executive Director a b d Rodney Chase was appointed non-executive Chairman Maroun Semaan joined Petrofac in 1991 to establish Keith Roberts joined Petrofac in March 2002 as Chief Rijnhard van Tets was appointed a Non–executive of Petrofac in June 2005. Rodney spent 38 years at BP Petrofac International. From 1977 to 1991, Maroun held Financial Officer having spent most of his working life Director of Petrofac in 2007. Rijnhard is currently plc, of which 11 were served on its board. He was various project positions with Consolidated Contractors as an investment banker based in the City of London. general partner of Laaken Asset Management NV. He deputy group CEO on his retirement from the BP group International Co. (CCC), based in the Middle East, After positions in commercial banking with Standard was an adviser to the managing board of ABN Amro in May 2003. He also spent time as CEO of the where he was involved in the management of oil & gas Chartered Bank and then with County Bank, the between 2002 and 2007, having previously served as a exploration and production, and marketing and refining pipeline, process facilities and civil works construction merchant banking subsidiary of National Westminster member of ABN Amro’s managing board for 12 years. divisions. He continues to serve as non-executive contracts in Oman and Bahrain. He was appointed Bank, Keith moved into corporate finance with Rijnhard occupied a number of very senior executive deputy chairman of Tesco plc; non-executive director Chief Executive of Petrofac Engineering & Construction Hawkpoint Partners where he was a managing director positions at ABN AMRO, most latterly as chairman of of Computer Sciences Corporation; non-executive in April 2004. In January 2009, Maroun was appointed and a member of the operating committee. He has ABN AMRO’s Wholesale Clients and Investment director of Nalco Company and non-executive director Group Chief Operating Officer with overall responsibility previously served as a non-executive director of the Banking Group between 1996 and 2002. Rijnhard of Tesoro Corporation. He has previously held positions for Petrofac’s Engineering & Construction, Engineering Peacock Group plc. Age 53. currently serves as a non-executive chairman of the as a board member of BOC plc and Diageo plc. Age 66. & Construction Ventures, Engineering Services, boards of Arcadis NV; Euronext Amsterdam NV; Governance Offshore Engineering & Operations and Training 7 Kjell Almskog Euronext NV and Equity Trust Holdings SARL and is a 2 Ayman Asfari Services businesses. Maroun currently serves as Non-executive Director a c d non-executive director of IFF Europe; NYSE Euronext Group Chief Executive c a member of The Board of Trustees of The American Kjell Almskog was appointed to the Petrofac Board Inc; Stichting Administratiekantoor Bührmann NV; and Ayman Asfari joined Petrofac in 1991 to establish University of Sharjah. Maroun is also a Founding in March 2005. Kjell has held a number of senior a number of charitable organisations. Age 62. Petrofac International. Ayman has 30 years’ experience Member of the Board of Trustees of Arab Forum executive positions including 13 years at the in the oil & gas industry and served as Chief Executive for Environment and Development (AFED). Age 54. international ABB group – most latterly as deputy The Board recommends that the following two Officer of Petrofac International until his appointment as group CEO and head of its oil, gas & petrochemicals individuals be appointed at the AGM subject to Group Chief Executive of Petrofac Limited in January 5 Bernard de Combret division. He was then chief executive of Kvaerner from shareholder approval. 2002. Ayman previously worked as the managing Non-executive Director b c d 1998 until its merger with Aker in 2001. Kjell was director of a major civil and mechanical construction Bernard de Combret was appointed to the Petrofac appointed non-executive chairman of Intex Resources Thomas Thune Andersen business based in Oman. Ayman currently serves as Board in November 2003. Bernard was deputy ASA, a Norwegian listed mining and exploration Proposed to be appointed as a Non-executive a member of The Board of Trustees of The American chairman of Total’s executive committee until his company in November 2007. He continues to serve as Director University of Beirut. Age 51. retirement in 2002. Following senior positions in both non-executive deputy chairman of Kverneland Group Having spent over 30 years with the A.P. Møller-Mærsk the French Ministry of Foreign Affairs and Ministry of ASA and as a senior adviser of the Taylor Group. Age 69. group, Thomas Thune Andersen retired from the 3 Michael Press Finance, he spent 24 years with Elf and subsequently company in 2009. Thomas held a number of very Senior Independent Director, Non-executive Total where he was CEO of refining marketing; CEO for 8 Amjad Bseisu senior positions at Møller-Mærsk most latterly as Chief Director a b c d gas, power, new energies; and CEO for trading and Chief Executive, Energy Developments Executive of Mærsk’s oil and gas division between Michael Press was appointed to the Petrofac Board in shipping. He is currently non-executive chairman of Amjad Bseisu joined Petrofac in 1998 and founded 2004 and 2009. He served both on the main board of April 2002, having previously held senior executive Coastal Energy in addition to serving as a non- the Energy Developments business. In 2007, Amjad Mærsk and its executive committee from 2005 to positions for the Standard Oil Company Inc and BP executive director of Winstar Resources Ltd and a rejoined the Petrofac Board having previously served 2009. Thomas serves as a non-executive director of and as a main board director of Amerada Hess. member of the international advisory board of Grupo for several years prior to the Company’s admission to Scottish & Southern Energy plc. Age 55. Between 1997 and 2001, Michael held various posts at Santander. He was appointed an independent director listing on the London Stock Exchange in 2005. From KBC Advanced Technologies including non-executive of Toreador Resources Corporation, a US listed 1984 to 1998, Amjad worked for the Atlantic Richfield Stefano Cao director, executive chairman, and chief executive. company, in September 2009. He has previously held Company (ARCO), ultimately as head of International Proposed to be appointed as a Non-executive Michael is chairman of TWMA, an Aberdeen based positions as a board member of Renault VI, Marketing, Negotiations and Business Development Director global drilling waste management firm and continues Intercontinental Exchange, CEPSA and Banco Central and president of ARCO Petroleum Ventures and ARCO Stefano Cao has more than 32 years’ experience in the to serve as senior independent director of Chart Hispano. Age 67. Crude Trading, Inc. Amjad was a founding non- oil and gas industry. He spent 24 years at Saipem Spa, Industries Inc. Age 62. executive director of Serica Energy plc and Stratic the international oil and gas services group, most Bernard will retire from the Board at the forthcoming Energy Corporation. Age 46. latterly as Chief Operating Officer and then Chairman Michael will retire from the Board at the forthcoming AGM and will not seek reappointment. and Chief Executive. Stefano left Saipem in 2000 and AGM and will not seek reappointment. It is anticipated that Amjad will step down from the joined Eni where he served as Chief Operating Officer Board on 6 April 2010 subject to becoming Chief of the Exploration & Production Division from 2000 to Executive of EnQuest PLC and the successful listing 2008. Today he is Chief Executive Officer of Sintonia of that company. SA, a holding company owning infrastructure assets including toll roads, airports and telecoms. He has previously served as an independent director of Telecom Italia SpA. Age 58. a Member of the Audit Committee b Member of the Remuneration Committee c Member of the Nominations Committee d Member of the Risk Committee 66 67 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Senior management team

Senior management team

1 2 3 4 5 6 7 8 9

1 Robin Pinchbeck 4 Bill Dunnett 6 Paul Groves 8 Subramanian Sarma Group Director of Strategy and Corporate Managing Director, Offshore Engineering & Managing Director, Training Services Managing Director, Engineering & Construction Development Operations 7 Rob Jewkes 9 Rajesh Verma 2 Richard Milne 5 Gordon East Managing Director, Energy Developments Managing Director, Engineering Services Group Director of Legal and Commercial Affairs Managing Director, Production Solutions

3 Marwan Chedid Managing Director, Engineering & Construction Ventures Governance 68 69 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate governance report

Corporate governance report

The Company is incorporated in Jersey, where there is no formal incorporated; and one meeting in Syria where the group has Code relating to corporate governance. However, the Board significant business operations. In addition, the Board held a recognises that it has a responsibility to ensure good governance number of telephone conference Board meetings at relatively of the Company in order to help it fulfil its obligations to all its short notice, which arose as a result of specific business, stakeholders, not just shareholders. It is therefore strongly usually in relation to a particular commercial project between committed to the highest standards of corporate governance and scheduled Board meetings. The agenda for each scheduled has decided to adhere, wherever possible, to the provisions of The Board meeting allows the Chairman and Non-executive Directors Combined Code on Corporate Governance published in 2008 (the to meet without the executive Directors present. In addition, Combined Code), in the same way as if the Company had been the Board attended a strategy and business planning day with incorporated in the United Kingdom. Looking ahead, the Board members of senior management. intends to adhere, wherever possible, to the UK Corporate Governance Code which will replace the current Combined Code Attendance by the Directors at the scheduled meetings of the in 2010. The Company has prepared an additional report on its Board was as follows: corporate social responsibility (pages 53 to 63), which sets out its engagement with society in general. This Report, however, Number of meetings 6 together with the Nominations Committee Report, Audit Rodney Chase Committee Report, Risk Committee Report and Remuneration Non-executive Chairman 6 Committee Report, is the Company’s formal report on its corporate Kjell Almskog governance framework and has been prepared by reference to the Non-executive Director 6 Combined Code. The Directors consider that throughout 2009 and Bernard de Combret up to the date hereof, the Company has fully complied with all Non-executive Director 6 provisions of the Combined Code. Michael Press¹ The Combined Code has identified four subject areas, which Senior Independent Director 6 underpin good corporate governance and these are: Rijnhard van Tets Non-executive Director 6 Governance ■ directors Ayman Asfari Group Chief Executive 6 ■ directors’ remuneration Maroun Semaan ■ accountability and audit Group Chief Operating Officer 6

■ relations with shareholders Amjad Bseisu Chief Executive, Energy Developments 6 Directors Keith Roberts The Board Chief Financial Officer 6 The Board is responsible to its shareholders for the control and 1 Kjell Almskog will become Senior Independent Director following the leadership of the group and for safeguarding the Company’s retirement of Michael Press at the 2010 AGM. reputation. Nine Directors have served during the year and to date but it is anticipated that Amjad Bseisu will step down from the Chairman and Group Chief Executive Board in April 2010 subject to being appointed Chief Executive of The roles of Chairman and Group Chief Executive are clearly EnQuest PLC and the successful listing of the shares of that separated and set out in writing. The Chairman is responsible for company. In addition, Bernard de Combret and Michael Press will the leadership of the Board, ensuring its effectiveness and setting be retiring from the Board at the 2010 AGM. The Board intends to its agenda and for ensuring that there is effective communication propose Thomas Thune Andersen and Stefano Cao for election to with all shareholders. The Chairman also facilitates the effective the Board by shareholders at the 2010 AGM. Details of current and contribution of all Directors and ensures that there is a constructive proposed Directors’ skills and experience are contained in the relationship between the executive and Non-executive Directors. Directors’ biographies on pages 64 and 65. The role of the Group Chief Executive is to implement strategy by developing manageable goals and priorities; to provide leadership The Board has a formal schedule of matters reserved to itself for and motivation to the management teams running the group’s decision, including, but not limited to, matters of a strategic nature; businesses; and to develop proposals for the Board to consider approval of the annual budget; approval of major acquisitions, in all areas reserved for its judgement. investments and disposals; major changes to the group’s capital structure; the preparation of financial statements; the Board balance and independence recommendation or declaration of dividends; the entry into The Board currently has nine members composed of the contracts which are deemed to be material strategically or by Chairman, four independent Non-executive Directors and four reason of size; succession planning and appointments to the executive Directors. The Board believes that it contains an Board; senior executive remuneration; ensuring the maintenance appropriate balance of skills and experience at the same time as of a sound system of internal controls; reviewing its own and its being able to respond quickly to the needs of the business. The Committees’ performance and reviewing the group’s overall Board considers all four Non-executive Directors who served corporate governance arrangements. during the year and Thomas Thune Andersen and Stefano Cao who will be proposed as Non-executive Directors at the 2010 AGM The Board met regularly during the year. The Board met in person to be independent in character and judgement and is not aware of at six meetings, which had been scheduled well in advance. In any relationships or circumstances which are likely to affect, or 2009, the Board held three such meetings in Continental Europe; could appear to affect the judgement of any of them. The extensive one meeting in Sharjah, the United Arab Emirates, where the group knowledge and experience of the Non-executive Directors has its largest office; one meeting in Jersey where the Company is combined with the focus and experience of the Chairman and executive Directors enable the Board to lead and give direction to 70 71 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate governance report

Corporate governance report continued the group without any imbalance that may allow any individual or (HSSEIA) twice a year. The Company is equally committed to Michael Press, the Senior Independent Director, led a separate systems encompass policies and procedures relating to all major group of individuals to dominate its decision making. Any Director providing its Directors with training on technical and regulatory evaluation of the Chairman through a series of questionnaire-led areas of risk including matters relating to contract execution, health having a concern in this or any other regard may raise it with the matters and such matters are generally addressed in Committee interviews with other members of the Board and senior and safety; security; and the environment. The Company has a Chairman or the Senior Independent Director. Directors have meetings. During the year, formal presentations and tutorials were management before providing feedback to the Chairman in Group Head of HSSEIA who heads a team with responsibility for access to the advice and services of the Secretary to the Board, provided in Committee meetings on a number of subjects: a one-to-one appraisal. Board evaluation will continue on an overseeing the development of appropriate HSSEIA management who is responsible for ensuring that Board procedures and accounting requirements in relation to hedge accounting; annual basis. systems and ensuring compliance with them, across the group. applicable rules and regulations are observed and for advising methodology for assessment of hydrocarbon reserves; Towards the end of 2009, the Group Head of HSSEIA appointed the Board, through the Chairman, on governance matters. The decommissioning; taxation; insurance; treasury; and the external Re-election of Directors a Head of Group Security, who has extensive security experience Directors are entitled to take independent professional advice, environment regarding remuneration. As well as the formal All Directors are required by the Company’s Articles of Association in the Middle East and other parts of the world. In addition, after at the Company’s expense, if required. programme of training which takes place as part of Board and to submit themselves to shareholders for re-election by rotation at conducting a lengthy selection process, the group has recently Committee meetings, the Secretary to the Board is available at all least once every three years or if they have been appointed part appointed an environmental specialist who will provide renewed The Board is assisted by various Committees, principally the times to provide Directors with updates in relation to governance way through the year by the Board at the subsequent AGM. impetus to the group’s environmental programme. For details Nominations, Audit, Risk and Remuneration Committees. Reports matters and as a point of first contact should Directors have any Sufficient biographical information and other information (including, about environmental progress, refer to page 56 of the Corporate for 2009 from each of these Committees are provided from pages other queries. In 2009, the Secretary provided the Board with in the case of a Non-executive Director seeking re-election, a Social Responsibility Report. 73 to 86. briefings on Listing Rule changes, the Walker Report, the Financial statement as to his continued effectiveness and commitment) is Reporting Council’s (FRC) review of the Combined Code and most provided to enable shareholders to make an informed decision. The Company has a Code of Business Conduct (Code), which Appointments to the Board latterly the FRC’s consultation on the provision of non-audit service amongst other matters, includes policies for the Company and its The Nominations Committee ensures a formal, rigorous and work by audit firms. Notwithstanding that the Chairman formally Directors’ remuneration employees on health and safety; security; the environment; transparent procedure for the appointment of new Directors. In the requests each Director to consider whether or not he requires any While the Board is ultimately responsible for Directors’ conflicts of interest; and areas of legal compliance. During the year, case of candidates for Non-executive Directorships, care is taken specific training on any aspect of the Company’s activities on an remuneration, the Remuneration Committee, consisting solely management rolled out an e-learning programme on the Code to ascertain whether they will have sufficient time to fulfil their annual basis, any Director may request the Secretary to the Board of independent Non-executive Directors, is responsible for across the group on a prioritised basis. By the end of January Board, and Committee responsibilities. As part of this process, to arrange any individual training or professional development at determining the remuneration and conditions of employment of 2010, more than 4,000 employees had completed the e-learning candidates disclose all other time commitments and on any time if he feels that this would be helpful to him in discharging executive Directors and certain members of senior management. programme including some 75% of employees in the Sharjah office appointment, undertake to inform the Chairman of any proposed his responsibilities. Most importantly, the Company believes that it A Report on the Directors’ remuneration, including a more detailed as well as a significant proportion of employees based in the changes. The terms and conditions of appointment of Non- promotes an atmosphere such that Directors are actively description of the role and activities of the Remuneration Company’s offices in Aberdeen, Woking, Algeria, Tunisia and India. Governance executive Directors are available from the Secretary to the Board encouraged to engage and ask questions. Committee is set out on pages 76 to 86. The Company intends that all employees will have completed the on request. e-learning programme by the end of 2010 notwithstanding the In the event that the Board appoints a new Director, the Chairman Accountability and audit difficulties in making the programme available to employees based Information and professional development works with the individual and the Secretary to the Board to develop Internal control on site. To enable the Board to discharge its duties, all Directors are given a tailored induction programme to take account of the individual’s The Board is responsible for reviewing the effectiveness of the appropriate documentation in advance of Board meetings. The specific needs. Arrangements are in place for Thomas Thune group’s system of internal control, including financial, operational The group has strengthened the process whereby employees can agenda and appropriate supporting Board papers are generally Andersen and Stefano Cao to visit the group’s UK offices and and compliance controls and systems for the identification and raise ethical concerns in confidence during the year. Employees distributed by the Secretary to the Board a week in advance of Sharjah office where they will have the opportunity to be briefed management of risk. The Audit Committee routinely meets with are able to contact anonymously a third-party organisation called each scheduled Board meeting and 24 hours in advance of a personally by each business managing director about his particular both the internal and external auditors and discusses matters of Expolink, 24 hours a day, 365 days per year, either by telephone or telephonic meeting called at short notice. In addition, all Directors business and meet other members of senior management from internal control particularly in relation to financial control. The Risk e-mail and report any matter in relation to an alleged breach of the are encouraged to make further enquiries as they feel appropriate both operational and functional disciplines. Given that Thomas and Committee, a committee of the Board, complements the Audit Code. Expolink contact both the Director of Legal and Commercial of the executive Directors or management team. Stefano are probably less familiar with the regulatory and Committee by focusing in more detail on the group’s operational Affairs and the Secretary to the Board with details of any alleged governance requirements associated with a UK listed company controls and risk management framework. The Audit Committee, breach and one of them will ensure that an appropriate The Company as a matter of course provides regular training for its than a UK based Non-executive Director might be, particular care on behalf of the Board conducted a specific review of the internal investigation is conducted, the results of which are fed back to Directors on the group’s business operations. The Group Chief will be taken to ensure that they understand the governance control environment following the year end. The group’s system of Expolink which reports back to the individual concerned. The Executive provides the Board with a formal report on the group’s framework that the Company operates within. A programme internal control can only provide reasonable, and not absolute, Secretary to the Board ensures that the Audit Committee is activities at each Board meeting. In addition, the Board is provided covering their responsibilities and liabilities as Directors; the assurance against material misstatement or loss, as it is designed periodically provided with a whistle blowing report which sets out with ad hoc presentations by operational management on a regular Companies (Jersey) Law 1991; features of the Company’s Articles to manage rather than eliminate the risk of failure to achieve a description of each matter raised and details of the outcome. The basis and undertakes an annual site visit. In 2009, the Managing of Association; the Company’s Code of Business Conduct and business objectives. However, the focus on risks and controls by Company conducted an employee survey in the Autumn of 2009 Director of the Offshore Engineering & Operations business gave Share Dealing Code; Listing and Disclosure and Transparency Rule these two Committees of the Board ensures a strong oversight (PetroVoices) to which some 55% of employees responded. 92% of a presentation and the Managing Director of Engineering & requirements; and Combined Code will be covered. process for the full Board. respondents said that they knew about the Company’s Code and Construction provided the Board with an overview of the group’s 55% said they would know how to make use of the whistle blowing Engineering & Construction activities in Syria. The Board spent Performance evaluation The group has an ongoing process for identifying, evaluating and facility. The previous PetroVoices survey conducted in 2007 several days in Syria during which time it visited two Engineering & The Chairman in consultation with the other Directors considered managing significant risks faced by the group, which has been in showed that 81% of employees knew about the Code and that Construction projects. Directors first visited the Jihar gas treatment how the Board might best evaluate its performance in 2009. In place for the year under review and up to the date of this Annual 46% of employees knew how to use the whistle blowing facility. plant before travelling to the Ebla site where they stayed overnight view of the fact that the Board had relied upon internal reviews Report and is in accordance with the Revised Turnbull guidance. Whilst the Company appears to have made progress in raising and toured the Ebla gas treatment plant the following day. The in 2007 and 2008, the Board decided that it would seek some awareness of the Code and Expolink facility, the e-learning Company believes that such presentations and site visits are external facilitation in 2009. It considered that another internal The key elements which make up a robust system of internal programme together with a recently implemented group-wide essential in order to increase Directors’ knowledge and review conducted in the same manner as the previous two years control in a business may be characterised by the business’s induction programme should significantly increase employee understanding of the group not only in terms of its operations would be unlikely to provide the Board with any new insight into its control environment and its risk management and assurance familiarity over the forthcoming year. but also its culture and people. The Chairman and Group Chief role and any changes the Board might make in seeking to process. A description of each of these elements for the group Executive have agreed a further programme of presentations discharge its responsibilities more effectively. Having considered is given below. The Company has a policy in relation to conflicts of interest. by operational senior management to the Board in 2010 and are several third parties who might conduct an external review, the Employees should not engage in activities which conflict or might currently planning a visit to the group’s operations in the Far East Chairman appointed ICSA Board Evaluation. Representatives of Control environment be perceived to conflict with their duties and guidance is provided later in the year. ICSA Board Evaluation are in the process of conducting face-to- The Board ensures that the group has a clear organisational on potential areas of conflict. If an employee considers that he or face interviews with Directors after which they will observe a Board structure for the control and monitoring of its businesses, including she may have a potential conflict, he or she must refer the matter In addition to operational management presentations, the Board meeting in progress. The ICSA will then present a written report to defined lines of responsibility and delegation of authority. Each of to the Group Chief Executive for his consideration. The Secretary receives a report from the Group Director of Legal and Commercial the Board and lead a discussion in relation to its findings and the group’s businesses operates and maintains its own business to the Board maintains a register of all such issues raised including Affairs at each Board meeting and reports from the Group Head of recommendations at the Board meeting in May 2010. management system designed to ensure the application of sound whether or not the proposed activity was permitted. In the event Health, Safety, Security, the Environment and Integrity Assurance processes of control to all projects and business activities; such 72 73 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate governance report

Corporate governance report continued that a Director considers that he may have a potential conflict, he Details of the principal risks and uncertainties facing the business and each share has one vote. One shareholder has notified the Chairman conducted a review of possible search consultants refers the matter to the Audit Committee for its consideration and are disclosed on pages 34 to 37. Company as at 23 February 2010 that it has an interest in 3% or before appointing Spencer Stuart to lead the search for a record is similarly added to the register. In addition, a Director is more of the Company and is as follows: candidates. A number of candidates were put forward for the required under Jersey legislation to declare any interest or potential Assurances Number of Percentage Nominations Committee consideration. In due course, the interest that might materially conflict with the interests of the The Board receives assurances from the following internal and ordinary of allotted Committee recommended that the Board propose Thomas Thune shares share capital Company prior to any Board meeting and the Director would be external controls: Andersen and Stefano Cao for appointment by shareholders at the excluded from any Board discussion or decision that related to Legal & General Group Plc 13,782,232 3.99% 2010 AGM. The Committee considers Thomas and Stefano to be the matter. ■ historical financial performance and revised forecasts for the excellent prospective members of the Board not only for their full year with significant variances are regularly reported by In addition to the above, Ayman Asfari and Maroun Semaan extensive experience of the oil & gas industry but also for their Risk management management to the Board together with their respective close families held major personal qualities and global outlook. Further, the Committee is The Board has ultimate responsibility for managing risk. It therefore shareholdings, details of which are disclosed in the Remuneration satisfied that both Thomas and Stefano have sufficient time to ■ reports from the Audit Committee, which includes feedback needs to ensure that the group defines its risk appetite; maintains Report on page 86. devote to the Board. Bernard and Michael will retire from the Board from the external and internal auditors; and the Risk Committee a sound system of risk management and internal controls; and at the conclusion of the AGM. This Report was approved by the Board on 5 March 2010. satisfies itself that appropriate systems are in place to identify, ■ the close involvement of the executive Directors in all aspects assess and manage key risks. In 2007, the Board established a of the group’s day-to-day operations, including regular During the year, the Committee received an update from the Risk Committee whose membership is comprised of Non-executive meetings each month with each business unit’s head of Rodney Chase Group Head of Human Resources on management’s developing Directors albeit the Group Chief Executive, Group Chief Operating business Chairman of the Board programme in relation to succession planning and talent Officer and Chief Financial Officer attend meetings as a matter management throughout the group and will continue to be provided ■ customer audits of course together with the Head of Enterprise Risk Management. Nominations Committee Report with further updates on progress. The Committee also considered Membership of the Nominations Committee during the year and The Risk Committee ensures that the group’s risk appetite is ■ reports and presentations to the Board by senior management its terms of reference and the proposed re-election of Rijnhard van considered, agreed and communicated via policies. In 2009, the to the date of this Report is as follows: Tets at the 2010 AGM. The Committee recommended to the Board ■ copies of minutes from group Risk Review Committee meetings Committee recommended that the Board approve three policies: that Rijnhard should be proposed for re-election by the Company’s Sovereign and Financial Market Risk Policy; Legal and Contract ■ Rodney Chase (Chairman) shareholders having judged him to be highly effective as a Board Relations with shareholders Compliance Risk Policy; and Operations Risk Policy. It is believed ■ member and Chairman of the Audit Committee. The Group Chief Executive, Chief Financial Officer and Head of Ayman Asfari that the three policies cover the full range of the group’s operational Investor Relations have regular meetings with major shareholders ■ Governance and compliance risks at least in so far as they have been identified. Kjell Almskog The Board intends that subject to shareholders electing Thomas and research analysts. The Chairman advises major shareholders The Sovereign and Financial Market Risk Policy covers policy ■ Thune Andersen and Stefano Cao at the 2010 AGM, the annually, in writing, of his availability (along with the Senior Michael Press in relation to country risk; inflation risk; commodity risk; currency Committee’s membership will be as follows with effect from Independent Director) should there be issues which the ■ risk and credit and counterparty risk. The Legal and Contract Bernard de Combret 13 May 2010: shareholders wish to discuss. Compliance Risk Policy covers ethical risk; contractual liability The Committee’s powers are conferred on it under the Company’s risk and the risk of non-compliance with a country’s local laws ■ Rodney Chase (Chairman) The Board receives regular feedback from analysts and major and regulations. The Operations Risk Policy covers project Articles of Association. It has formal terms of reference, which have shareholders, compiled by the Company’s brokers and financial ■ Ayman Asfari performance risk; business continuity risk; leadership risk; been drafted in accordance with the Combined Code, are PR consultants, in particular following presentations and meetings reviewed annually by the Committee and are available on the change risk; and health, safety, security and environment risks. ■ Kjell Almskog after the publication of financial results. Company’s website. The Secretary to the Board acts as secretary ■ Thomas Thune Andersen At least once a year, the Risk Committee intends to review each to the Committee. Minutes for all meetings are circulated to all The principal method of communicating with the majority of Directors unless there is deemed to be a conflict of interest and policy at the same time as receiving a report on how the various ■ Stefano Cao shareholders is via the Annual Report and financial statements risks covered by each policy are addressed within the business supplemented by an oral report from the Committee’s Chairman and the Company’s website which contains details of financial ■ Rijnhard van Tets specifically in relation to standards; resources; training and at the next Board meeting. The Committee’s principal roles and presentations to analysts and other information about the group. communication; review and reporting; and audit. The Risk responsibilities include the following: All shareholders have the opportunity to attend the AGM. All This Report was approved by the Board on 5 March 2010. Committee therefore provides the Board’s primary forum for Directors were present at the 2009 AGM and all current and ■ articulating the group’s risk appetite and assuring itself that an consider and make recommendations to the Board on all new proposed Directors intend to be present at the 2010 AGM to Rodney Chase appropriate and effective risk management framework is in place. appointments of Directors taking into account the overall size, answer shareholders’ questions. Details of the meeting are set out Committee Chairman The Board is also made aware of material individual risks facing balance and composition of the Board in the Notice of Meeting which is sent to shareholders, and which the group. The Head of Enterprise Risk Management provides a ■ contains the text of resolutions to be proposed and explanatory consider and make recommendations to the Board in relation written report in advance of each scheduled Board meeting giving notes, where necessary. Shareholders attending will be advised to the composition of the Board’s committees details of the most current material risks facing the group together of the number of proxy votes lodged for each resolution, in the ■ with an explanation of any mitigating action. In 2009, management consider succession planning categories ‘for’ and ‘against’, together with the number of ‘votes established an Enterprise Risk Management Committee which ■ withheld’. All resolutions will be voted on by taking a poll, the make recommendations to the Board concerning the is chaired by the Group Chief Operating Officer. The Committee results of which will be announced to the London Stock Exchange reappointment of any Director following conclusion of his meets twice a year for the purpose of ensuring that the group’s and published on the Company’s website. specified term in office risk policies are implemented. Each of the group’s individual businesses operates and maintains a business management The Company is incorporated in Jersey, shareholders are required Meetings are held as deemed necessary by the Chairman and system incorporating policies and procedures which assist with the under the UK Listing Authority to notify the Company in the event during the course of 2009, five meetings were held and all business’s risk management. In addition, each business is required that they can exercise 5% or more of the Company’s voting rights. members attended on each occasion. The Board believes that as to produce a risk matrix which identifies the key business risks, the If the Company were incorporated in the UK, shareholders would a general rule Non-executive Directors should serve two three-year probability of those risks occurring, their impact if they do occur be required to notify the Company in the event that they could terms and that the Nominations Committee should seek to ensure and the actions being taken in order to manage and mitigate those exercise 3% or more of the Company’s voting rights. As a matter that the Board is refreshed on a systematic and regular basis. risks. The Head of Enterprise Risk Management has access to the of principle, the Company aims wherever possible to govern itself Given that Bernard de Combret and Michael Press would each risk matrices for the businesses and furthermore receives regular as if it were incorporated in the UK rather than Jersey and for this have completed service on the Board for at least six years during reports from the management team for each business. In addition, reason, adopted Articles of Association which currently require its 2009, the Committee initiated a process at the start of the year to a rigorous process exists for the consideration of risks associated shareholders to notify the Company in the event that a shareholder identify candidates to join the Board within the next 18 months. with undertaking new business via individual business and group acquires voting rights in 3% or more in the Company’s share The Chairman of the Committee, with assistance from the Group Risk Review Committees. capital. The Company currently has 345,629,656 shares in issue Head of Human Resources, led the search process in the first instance. Having agreed a role and person specification, the 74 75 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Corporate governance report

Corporate governance report continued

Audit Committee Report Financial reporting which non-audit services require the approval of the Chairman of Risk Committee Report Membership of the Audit Committee during the year and to the The Committee reviewed the 2008 Annual Report and financial the Committee. The Committee reviewed the group’s non-audit Membership of the Risk Committee during the year and to the date date of this Report is as follows: statements and the 2009 Interim Report issued in September 2009 services policy at the end of the year. In light of the Select Treasury of this Report is as follows: before recommending their publication to the Board. As part of this Committee’s request to the FRC in October 2009 to review ■ Rijnhard van Tets (Chairman) overall review, the Committee considered the draft preliminary whether or not there should be further restrictions on the provision ■ Kjell Almskog (Chairman) announcements in respect of the Company’s 2008 final and 2009 of non-audit services by audit firms, the Committee decided that it ■ Kjell Almskog ■ Bernard de Combret interim results. The Committee discussed with the Chief Financial would delay its formal review of the group’s non-audit services ■ Michael Press Officer and external auditors the significant accounting policies, policy until such time as the FRC has published its report on the ■ Michael Press estimates and judgements in preparing the Company’s 2008 matter. For the time being, the group’s non-audit services policy ■ Rijnhard van Tets Both Rijnhard van Tets and Kjell Almskog have recent and Report and financial statements and 2009 Interim Report. remains in line with current best corporate governance practice. relevant financial experience and are deemed to have competence In addition, the Committee reviewed drafts of trading statements The policy automatically excludes the Company’s auditors from The Committee has formal terms of reference, which are reviewed in accounting. and interim management statements before recommending their undertaking certain types of work which might impair the auditors’ every two years by the Committee and are available on the publication to the Board. independence. The Chief Financial Officer is required to seek prior Company’s website. The Committee is supported by the Head The Committee’s powers are conferred to it under the Company’s clearance from the Chairman of the Audit Committee where any of Enterprise Risk Management and the Secretary to the Board Articles of Association. It has formal terms of reference, which have Internal controls and risk management systems individual fee in relation to non-audit services is in excess of acts as secretary to the Committee. Minutes for all meetings are been drafted in accordance with the Combined Code, are The Committee has responsibility for reviewing the Company’s US$200,000; the aggregate non-audit service fees for the year circulated to all Directors and supplemented by an oral report reviewed annually by the Committee and are available on the internal controls and it primarily discharges this responsibility are approaching 50% of the annual audit fee; or the auditor would from the Committee’s Chairman at the next Board meeting. Company’s website. The Committee’s principal roles and through its engagement with the Risk Committee and the group’s generally be excluded from providing the service but the Chief The Committee takes primary responsibility for: responsibilities include the following: internal and external auditors. An annual internal audit plan, drawn Financial Officer believes that due to exceptional circumstances up on a risk-based approach, is presented to the Committee for its the service would be better performed by the Company’s auditor ■ reviewing proposed group risk policy and procedures and ■ to monitor the integrity of the Company’s financial statements review and approval at the start of the financial year. The Group rather than another audit firm. Within these parameters, where recommending that they be adopted by the Board and announcements relating to its financial performance and Head of Internal Audit provides the Committee with an interim it is considered reasonable that the external auditors undertake review significant financial reporting judgements progress report part way through the year, as a result of which the non-audit services for sound commercial and practical reasons ■ overseeing group operational risk management systems audit plan may be revised, before returning to the Committee with without inhibiting objectivity, then engagement is permitted. Such including insurance management ■ to keep under review the effectiveness of the Company’s his final report for the year at the start of the subsequent year. At services might include independent certification, reporting for FSA internal control and risk management systems ■ identifying risks in relation to the enterprise as a whole and Governance the same time as the final report for the previous year is presented, or UKLA purposes and tax advice. The cost of services provided monitoring how they are managed ■ to monitor the effectiveness of the internal audit function and an audit plan for the current year is proposed and so the ongoing by the external auditors during the year is detailed in note 4g to the review its material findings process of internal control review is continued. In 2009, the internal financial statements. Most of the cost of non-audit services was ■ reviewing any external disclosures made by the group in audit department completed a total of 59 assignments across a associated with tax and assurance services where involvement by relation to its risk management ■ to oversee the relationship with the external auditors, including broad cross-section of the group’s activities. the external auditors was considered appropriate and in the best agreeing their remuneration and terms of engagement, commercial interests of the group. The Committee met three times during the year and all members monitoring their independence, objectivity and effectiveness In addition, the Committee also received presentations or reports attended each meeting. In 2009, the Committee reviewed a and ensuring that policy surrounding their engagement to during the year in relation to the group’s whistle blowing policy The Board intends that subject to shareholders electing Thomas Sovereign and Financial Market Risk Policy; Legal and Contract provide non-audit services is appropriately applied (known as the ‘speaking up’ policy by employees) and its Thune Andersen at the 2010 AGM, the Committee’s membership Compliance Risk Policy; and Operations Risk Policy for the group effectiveness; and the group’s use of an aircraft owned by will be as follows with effect from 13 May 2010: and having done so recommended that the Board adopt such The Committee is authorised to investigate any matters within its an offshore trust in which the Group Chief Executive has policies which the Board duly did. The Head of Enterprise Risk terms of reference and may therefore seek any information it a beneficial interest. ■ Rijnhard van Tets (Chairman) Management provided a high level assessment of the group’s requires from any employee and obtain, at the Company’s compliance with the three policies at the end of 2009. In 2010, expense, such professional advice as it sees fit in order to fulfil its ■ Kjell Almskog Internal audit he will provide an update on each of the policies over the course duties. However, the Committee has no executive function and its The Committee evaluated the performance of internal audit from ■ Thomas Thune Andersen of the three meetings scheduled during the year. The Committee primary role is to review and challenge, rather than assume the quality of reports from the Group Head of Internal Audit; received regular updates on the group’s business continuity responsibility for any matters within its remit. feedback from management and an assessment of work planned This Report was approved by the Board on 5 March 2010. planning in the event of an unforeseen disruption to part or all and undertaken. The Internal Audit Department is currently staffed of the group’s enterprise and noted that good progress has been Attendance at the Committee meetings is at the invitation of the by six individuals in addition to the Group Head of Internal Audit. Rijnhard van Tets made in 2009 notwithstanding the group’s continuing growth. Chairman of the Committee. However, the Chief Financial Officer, The members of the department include accountants, IT Committee Chairman It is expected that full implementation of a business continuity Group Financial Controller, Group Head of Internal Audit and the specialists and an oil & gas engineer. The Committee will continue plan across the group will be achieved in the first half of 2010. external auditors generally attend some or all of the Committee to keep the resourcing of the department under review but The Company’s Engineering Services office in Woking achieved meetings. The Group Head of Internal Audit and the external currently believes it is adequate both in terms of headcount and accreditation to BS 25999 in 2009, which is a first in the oil & gas auditors have the right to speak directly to the Chairman of the skills’ set. industry. The Group Head of Insurance and the Group Head of Committee at any time and have the opportunity to meet the Treasury both provided briefings to the Risk Committee. Committee without management present at least once a year. External audit The Secretary to the Board acts as secretary to the Committee. The Committee recommended to the Board that the external The Board intends that subject to shareholders appointing Stefano auditors be reappointed following an assessment of the quality Cao at the 2010 AGM, the Committee’s membership will be as Minutes for all meetings of the Committee are circulated to all of service provided, including the qualifications of the external follows with effect from 13 May 2010: Directors and supplemented by an oral report from the auditors; the expertise and resources made available to the group; Committee’s Chairman at the next Board meeting, identifying any auditors’ independence and the effectiveness of the audit process. ■ Stefano Cao (Chairman) matters in respect of which action or improvement is required and The decision was based on consideration of reports issued by making recommendations where appropriate. ■ Kjell Almskog external auditors and feedback from the Chief Financial Officer and Group Financial Controller. ■ Rijnhard van Tets The Committee met six times during the year and all members attended on each occasion. It considered the following matters: The Committee satisfied itself that the external auditors remain This Report was approved by the Board on 5 March 2010. independent having regard to the auditors’ procedures for maintaining and monitoring independence; the auditors’ policy for Kjell Almskog rotation of the lead partner and key audit personnel; and a policy, Committee Chairman which specifies areas of non-audit services that cannot be carried out by the external auditors and the financial thresholds above 76 77 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ remuneration report

Directors’ remuneration report

Introduction Role of the Remuneration Committee In addition, the Committee met telephonically on one occasion to incentivised to deliver the group’s strategic goals and thus deliver The Directors are not required under Jersey law to prepare a The Remuneration Committee is a formal Committee of the Board, approve awards under the Company’s Performance Share Plan long-term shareholder value. Remuneration Committee Report but in accordance with the and has powers delegated to it under the Articles of Association. and Deferred Bonus Share Plan as part of its annual cycle of share principles of good corporate governance, as outlined in the Its remit is set out in terms of reference formally adopted by the awards due to a prior commitment. Details of these schemes are The Committee intended to review in 2008 whether the current Combined Code, have chosen to do so. This Report has been Board, which were last reviewed in December 2009. A copy of provided on pages 80 to 82. arrangements would allow the Company to deliver its stated prepared by the Remuneration Committee as if the Company was the terms of reference is available on the Company’s website. remuneration policy. However, due to the wider economic required to comply with both Schedule 8 to The Large and Medium- The primary purposes of the Remuneration Committee are set In addition to its routine business, the Committee also undertook environment which prevailed at the end of 2008, the Committee sized Companies and Groups (Accounts and Reports) Regulations out in its terms of reference and are to: a major review of executive Director and senior management delayed its review of the remuneration policy until 2009. 2008 of the United Kingdom and relevant Listing Rules of the incentive arrangements during 2009 and the conclusions from this Financial Services Authority and has been approved by the Board. ■ recommend to the Board the broad policy in respect of senior review are outlined below. In 2009, the Committee conducted a review of the remuneration management remuneration arrangements currently in place, drawing on independent advice This Report sets out the remuneration policy and principles under Good governance from Deloitte LLP. ■ ensure that the levels of remuneration are appropriate in order which the Directors and senior managers are remunerated, and The Board and the Committee consider that throughout 2009 and to encourage enhanced performance details the remuneration and share interests of each Director for up to the date of this Report the Company has complied with the The review highlighted that remuneration in Petrofac has been the year ended 31 December 2009. ■ approve the design and set the targets for any performance- provisions of the Combined Code relating to Directors’ remuneration. uncompetitive at executive director level for a significant period of related pay scheme time. This has been as a result of both the conservative practice to As required by the Remuneration Report Regulations, shareholders Remuneration policy and practice date in terms of both basic salary levels and incentive opportunity, ■ review the design of all share incentive plans before approval will be invited to approve this Report at the Annual General Non-executive Directors and the significant growth in the Company since IPO. by the Board and shareholders, to monitor the application of Meeting. The vote on the resolution will have advisory status only, The Board, with the assistance of independent professional the rules of such schemes and the overall aggregate amount will be in respect of remuneration policy and overall remuneration advice, determines the fees of the independent Non-executive To some extent, this has been possible given that most executive of such awards packages and will not be specific to individual levels of Directors. The Board reviews Non-executive Director fees annually. Directors and members of senior management are significant remuneration. The members of the Remuneration Committee will ■ set the remuneration of all executive Directors, members of When deciding an appropriate fee level for each independent shareholders in the Company following the IPO. However, as the be available at the Annual General Meeting to answer senior management and the Chairman including annual cash Non-executive Director, the Board takes into account the level of business matures, it is becoming more important to be able to shareholders’ questions about the Directors’ remuneration. bonus and share incentive payments fees generally paid to Non-executive Directors serving on boards recruit new senior executive talent, but also increasingly of similarly sized companies listed in the United Kingdom and inappropriate to pay our senior leaders at levels which are wholly Governance The sections of this Report dealing with Directors’ emoluments During 2009, the Group Chief Executive, Ayman Asfari, attended further considers the responsibility and time commitment required out of line with the rate for the job. and share interests have been audited (pages 84 to 86) by the meetings at the invitation of the Chairman in order to provide of each individual. group’s external auditors. advice on setting remuneration for other executive Directors and The Committee has reiterated its preference to provide significant members of senior management. He attended no part of a meeting Executive Directors and members of senior management emphasis on the performance-related elements of pay. Therefore, Information not subject to audit at which his own remuneration was being discussed. The Committee aims to establish a level of remuneration which is the Committee has decided that: Composition of the Committee sufficient to attract, retain and motivate executive Directors and key Membership of the Remuneration Committee during the year and Richard Milne, the Group Director of Legal and Commercial Affairs executives of the calibre required to achieve the group’s objectives; ■ subject to shareholder approval at the 2010 AGM, the to the date of this Report is as follows: and Carol Arrowsmith of Deloitte LLP each attended one meeting and which furthermore, reflects the size and complexity of the maximum annual award under the PSP should be increased during the year. The Director of Legal and Commercial Affairs group’s business together with an executive’s individual to 200% of basic salary (or 300% of basic salary in exceptional ■ Bernard de Combret (Chairman) attended a meeting at the start of the year in order to provide contribution and geographical location. circumstances) with immediate effect advice in relation to the matters being discussed in particular the ■ Michael Press ■ the maximum annual cash bonus will be increased to 200% group’s share incentive schemes. Geoffrey Tranfield, the Group The Committee believes that the most appropriate pay of basic salary with effect from the 2010 bonus year ■ Rijnhard van Tets Head of Human Resources attended all meetings to provide comparators for the executive Directors and members of senior context to the Remuneration Committee in relation to matters management are: This means that if an executive Director were to receive a maximum Given their diverse backgrounds and experience, the Board being discussed. Carol Arrowsmith attended a meeting at the end cash bonus and maximum PSP award equal to 200% of basic believes that the current Committee members provide a suitably of the year in order to provide advice in relation to the revised PSP ■ a select group of international and UK oil & gas services salary, his fixed remuneration (excluding cash allowances/benefits) balanced perspective on executive remuneration matters. None of scheme (see page 80). The Secretary to the Board acts as companies for the Group Chief Executive and certain would be equal to one-fifth of his overall remuneration whilst the the Directors who served during the year had or has any personal secretary to the Committee and therefore attended all meetings. operational executives (to the extent that data in relation remaining four-fifths of his overall remuneration would be variable interest in the matters to be decided (other than as shareholders of to such comparator companies is publicly available) remuneration. the Company), any potential conflict of interest arising out of The Committee appointed Deloitte LLP to provide independent ■ the FTSE 350 for certain functional executives cross-directorships or any day-to-day involvement in the advice on remuneration matters during the year. In 2009, Deloitte Previously the weighting between basic salaries, annual bonus and management of the group’s business activities. LLP separately provided the Company with access to an industry PSP had been broadly equal (i.e. one-third each). However, it also uses remuneration in UK companies of a similar research database, but did not provide any other non- size and complexity as a reference point when considering As previously reported in the Corporate Governance Report, remuneration related advice to the Company. The Committee awarded modest basic salary increases of 5% to executive Director and senior management remuneration. Bernard de Combret and Michael Press will be stepping down its executive Directors with effect from 1 January 2010. In making from the Board at the 2010 AGM. The Board intends that subject Minutes of the meetings of the Committee are circulated to all its decision, the Committee took account of current shareholder Proposed changes to executive Director remuneration to shareholders appointing Thomas Thune Andersen and Stefano Directors unless any Director is the subject of debate by the views on salary increases in the external environment. In 2007, the Committee agreed that its remuneration policy for Cao at the 2010 AGM, the Committee’s membership will be as Committee, in which case the minutes will not be sent to him. The executive Directors and members of senior management going follows with effect from 13 May 2010: Chairman supplements the formal circulation of the minutes by a Nevertheless, the Committee recognises that the revised basic forward would be as follows: verbal update from the Committee Chairman at the Board meeting salary levels continue to be below lower quartile compared to UK ■ Thomas Thune Andersen (Chairman) following a Committee meeting. companies of similar size and complexity and below industry ■ basic salaries would be median or below against a relevant benchmarks. This has a significant impact on total remuneration ■ Kjell Almskog benchmarking group (see above); and Activities of the Remuneration Committee which remains very conservative even after the changes to ■ Stefano Cao The Committee met four times in the year and reports herewith its ■ the variable elements of remuneration would be structured so that performance-related pay outlined above. material findings. Attendance at the meetings during the year was individuals can achieve total remuneration that is upper quartile as follows: subject to achievement of challenging performance standards The Committee therefore intends to review basic salaries again during the course of 2010. No significant changes to basic Number of meetings 4 The Committee believes that such a remuneration policy which salaries will be implemented without dialogue with the Company’s Bernard de Combret sets the fixed elements at median or below and provides incentives major shareholders. Chairman 4 capable of delivering upper quartile pay for delivery of superior Michael Press 4 performance is the most effective way in which to ensure that executive Directors and members of senior management are Rijnhard van Tets 4 78 79 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ remuneration report

Directors’ remuneration report continued

The following table summarises the proposed changes to Petrofac’s remuneration policy and more particularly to Petrofac’s individual Individual elements of remuneration Basic salary, cash allowances and non-cash benefits remuneration elements. The balance between the fixed and variable elements of Basic salary remuneration varies depending on performance. The chart Ordinarily, the Committee determines an executive Director’s basic Current policy Proposed changes below shows the new anticipated balance between fixed and salary at the beginning of each year and any change is applied with variable pay following the changes to variable pay outlined above. effect from 1 January. Basic salary Role and contribution – market median or below. No change to overall policy – remains market median or below. However, 2009 basic salaries are below lower quartile Fixed/variable pay mix At the time of the original listing of the Company, the Committee compared to UK companies of similar size and complexity Increases for executive Directors of 5% with effect from Composition of total remuneration package from set salary levels appreciably below the prevailing rate. and below industry benchmarks. 1 January 2010. Basic salary levels will be reviewed further 2010 at maximum performance in 2010. Since the Company has grown significantly since IPO, it is currently recognised that basic salaries and pension arrangements are Cash Market standard for role and geographic location. No change to overall policy. significantly behind market practice. Due to the prevailing allowances, 20% Current levels are below median. Increase of either £10,000 or £20,000 to cash allowance economic conditions at the beginning of 2009, the Committee non-cash Fixed for UK Directors with effect from 1 January 2010. Maroun did not award significant salary increases to executive Directors, benefits and None of the executive Directors is eligible to receive pension Semaan also received an increase to his allowance of keeping increases of between 3–6% in line with nearly all other pension contributions from the Company. 80% US$40,000. Petrofac employees. The one exception to this was Maroun Variable Cash allowances to be reviewed later in 2010. Semaan who received a 12.5% increase to reflect his promotion to Group Chief Operating Officer with effect from 1 January 2009. Annual cash Maximum of 100% of basic salary or 150% for outstanding Maximum of 200% of basic salary for outstanding bonus performance. performance with effect from the 2010 bonus year (i.e. As outlined on page 77, the Committee awarded modest basic payments to be made in March 2011). salary increases of 5% to its executive Directors with effect from Award subject to achievement of financial, safety and 1 January 2010. Changes to basic salaries are as follows: personal performance targets over the relevant financial year. Bonuses will continue to be determined based on Basic salary achievement of financial, safety and personal performance 2009 (with effect from targets over the relevant financial year. basic salary 1 January 2010)

Ayman Asfari £462,000 £485,000 Governance Performance Maximum grant level of 100% of basic salary or 150% in Maximum grant level proposed to increase to 200% of basic Maroun Semaan US$450,000 US$472,500 Share Plan exceptional circumstances. salary (300% in exceptional circumstances) for awards made (PSP) in 2010 onwards. Amendments to current plan to be submitted Amjad Bseisu £275,000 £289,000 50% of awards are subject to total shareholder return (TSR) for shareholder approval at the 2010 AGM (see pages 80 and relative to an international peer group on an Index TSR basis: Keith Roberts £278,000 £292,000 81 for further details). ■ 0% vesting below median No significant change to TSR performance condition for Cash allowances ■ 30% vesting at median 2010 awards. In addition to basic salary and non-cash benefits, UK resident

■ 100% vesting for out-performance of the median by 25% Changes to EPS performance targets: executive Directors receive a cash allowance in place of benefits including, but not limited to, car allowances and pension 50% of awards are subject to an achievement of compound ■ 0% vesting for 10% growth p.a. contributions. None of the Directors is eligible to receive pension annual growth in Earnings Per Share (EPS): ■ 30% vesting for 15% growth p.a. contributions from the Company. ■ 0% vesting for 15% growth p.a. ■ 100% vesting for 20% growth p.a. ■ 30% vesting for 20% growth p.a. In 2009, Ayman Asfari received a cash allowance of £40,000 whilst the other UK-based executive Directors received £30,000. These ■ 100% vesting for 25% growth p.a. amounts were unchanged from 2008.

In 2010, all executive Directors will receive cash allowances of £50,000. The Committee has made these small adjustments to cash allowances to greater align the quantum with practice in the wider market. A more detailed review of pension and benefits will be undertaken in 2010, and a more meaningful pension supplement may be implemented.

The Company pays a cash allowance in respect of housing and transport to Maroun Semaan, in line with local market practice. In 2009, Maroun Semaan received a cash allowance of US$180,000 for the year. In line with the increases for the UK-based executive Directors, Maroun Semaan will receive cash allowances of US$220,000 in 2010.

In addition to basic salary, Maroun Semaan, as a UAE resident executive Director, is required by local statute to receive a cash sum (called an end of service indemnity) from his employer on the termination of his employment within the UAE. Accordingly, the Company accrues an amount each year. 80 81 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ remuneration report

Directors’ remuneration report continued

Non-cash benefits Share incentive schemes The Committee believes that TSR remains the best measure of the EPS element (50% of award) All executive Directors receive certain benefits-in-kind. UK resident Performance Share Plan (PSP) Company’s ultimate delivery of shareholder returns and that EPS is EPS is the earnings (which excludes dividends), in pence, executive Directors currently receive private health insurance, life Executive Directors and a restricted number of other members the internal financial measure that is most closely linked to value attributable to one ordinary share. The Company’s EPS assurance and long-term disability insurance. Maroun Semaan, of senior management may receive performance-related share creation in an oil & gas services business. performance over a three-year period is calculated and vesting who is resident in the UAE, receives similar benefits as well as awards on an annual basis. Participants are granted contingent is in line with the vesting schedule attached to a particular award. other benefits typical for expatriate senior executives such as awards to receive ordinary shares in the Company which will TSR element (50% of award) education and return flights to his permanent home. in normal circumstances vest after three years subject to the For the 2010 PSP grant, the TSR performance measure and The vesting schedule attached to awards in 2009 and prior years continued employment of the participant and to the extent that accompanying vesting schedule will remain the same as is as shown in the following table. Annual cash bonus payments performance conditions have been satisfied. previous grants. In January of each year, the Committee considers whether or not 2006 to 2009 awards to award each executive Director an annual cash bonus for the The performance period under the PSP is three years, as this is TSR is the percentage return to a purchaser of an ordinary share previous year. In its deliberations, the Committee considers two considered to be an appropriate long-term time horizon for both in the Company arising from share price appreciation and EPS compound annual growth Percentage of EPS principal elements in determining a director’s cash bonus: performance measurement and retention. reinvestment of dividends over a given period. The TSR of the over three year period element of award vesting Company is measured and then compared against the median 15% or less 0% ■ first, the extent to which the group’s financial performance, Under the existing PSP, the maximum award level in any financial TSR of an index of a number of international peer companies. More than 15% but less than 20% Straight-line vesting and, as appropriate, the business division for which the year is 100% of basic annual salary or, in circumstances which the Details of the index constituents are provided below. between 0% and 30% individual director is primarily responsible, have achieved Committee deems to be exceptional, 150% of basic annual salary. 20% 30% annually established budgets and targets Vesting is in line with the following scale: More than 20% but less than 25% Straight-line vesting As part of the remuneration review carried out during 2009, the ■ second, the extent to which the individual has met personal between 30% and 100% levels of award under the PSP were considered in the context of TSR relative to un-weighted Percentage of TSR objectives, which are agreed at the start of each year in the total remuneration package. The Committee was of the opinion index of comparator group element of award vesting 25% or more 100% question and which are established with the aim of achieving that in order to recognise and reward the delivery of outstanding Less than index median 0% the group’s business strategy. Each executive Director’s business performance, it would be appropriate to increase Equal to index median 30% The Committee reviewed the EPS targets for the 2010 PSP personal objectives include health and safety targets. In performance-related incentives, particularly those measured over awards. In doing so, it gave consideration to internal growth addition, some executive Directors have additional targets More than index median by up to 25% Straight-line vesting the longer-term. projections, market consensus figures and general external between 30% and 100% Governance in relation to succession planning; risk management and conditions. The EPS targets for the 2010 PSP awards have the development and implementation of the group’s social, More than index median by 25% or more 100% Therefore, in light of this, the Committee has decided to amend been reduced accordingly. environmental and ethical programme. In this way, the the rules of the PSP and submit this for shareholder approval at 1 For awards granted from 2006 to 2009, it was necessary to achieve EPS Remuneration Committee considers that it has in place growth over the period of at least Retail Price Index plus 3% over the three- the 2010 AGM. This is to enable maximum PSP award levels to be However, the Committee considers the revised EPS targets to be an incentive structure for members of senior management year vesting period. From 2010 onwards, vesting of the TSR element is 200% of salary, or 300% of salary in exceptional circumstances subject to the achievement of strong underlying financial performance extremely stretching. Achieving 20% per annum EPS growth would which promotes responsible behaviour such as recruitment. of Petrofac. represent exceptional performance in current market conditions, 2 In 2006, the companies from which the comparator index is composed and given exceptional growth to date. For 2009, in line with previous practice, the Committee set the It is proposed that these new limits will also apply to the 2010 were as follows: Abbot Group PLC; Aker Kvaerner ASA; AMEC PLC; maximum bonus potential at 100% of basic annual salary for Helix Energy Solutions Group, Inc (formerly Cal Dive International Inc); awards, and these awards will be made immediately following 2010 awards achievement of corporate and personal targets but retained the Chicago Bridge & Iron Co NV; Entrepose Contracting; Expro International the 2010 AGM. Group PLC; Halliburton Co; JGC Corp; Saipem SpA; Schlumberger ability to increase this to 150% of basic annual salary if outstanding Limited; SNC-Lavalin Group Inc; Technip SA; Wood Group (John) plc; EPS compound annual growth Percentage of EPS performance were to be achieved. over three-year period element of award vesting It is proposed that award levels of 200% of salary will be made Fluor Corporation; Foster Wheeler Limited; and WorleyParsons Limited. For grants made in 2007 and 2008, the comparator index included the to all executive Directors in 2010, except Maroun Semaan who 10% or less 0% In respect of 2009, the Committee awarded cash bonus awards above listed companies and in addition, Tecnicas Reunidas SA. For the will receive an exceptional PSP award of 225% of salary due to 2009 grant, the 2008 comparator group was used, excluding Abbot More than 10% but less than 15% Straight-line vesting equal to 150% of salary to Ayman Asfari and Maroun Semaan, in his outstanding contribution to the Group’s extremely strong Group PLC and Expro International Group PLC. For the 2010 grant, between 0% and 30% recognition not only of the group’s outstanding financial results performance in 2009. Helix Energy Solutions will be replaced by Maire Tecnimont S.p.A. 15% 30% for 2009 but also their respective personal performances. Keith in the comparator group. Roberts and Amjad Bseisu were each awarded cash bonus 3 The Committee is authorised under the rules of the PSP to make More than 15% but less than 20% Straight-line vesting The Committee believes that PSP performance conditions should awards equal to 100% of their respective basic salaries. retrospective adjustment(s) to the comparator index for any year of award between 30% and 100% strike a balance between achieving alignment with ultimate in the event that one or more of the constituent companies are subject 20% or more 100% shareholder returns and reward for delivery of strong underlying to any of the following: de-listing; merger; acquisition or other such event. The following table sets out the annual bonus awards made to performance, the latter being more directly under the control of In 2008, Abbot Group PLC and Expro International Group PLC ceased to executive Directors’ for 2009 performance. exist as independent companies. The Committee therefore decided that Other senior management, management and senior management. these two entities would be removed from the comparator index for 2006, all-employee schemes Annual bonus Approximate 2007 and 2008 awards with effect from the respective months in which As part of its oversight role, the Committee has considered the they ceased to be independent companies. in respect of 2009 % of salary Vesting of PSP grants to date are made subject to two following three schemes. 4 It is assumed that £100 is notionally invested at the start of the Ayman Asfari £700,000 150% performance measures calculated over the three years following the grant of the award: performance period equally amongst all the companies making up the Maroun Semaan US$675,000 150% TSR index. At the end of the vesting period, the index will represent the Deferred Bonus Share Plan (DBSP) value of what the initial notional investment of £100 would have returned Amjad Bseisu £275,000 100% Under the DBSP, selected members of management are invited, or (i) Total Shareholder Return (TSR) relative to an index of a over the period. This will be representative of the average return made by in some cases required, to defer a proportion of their annual cash Keith Roberts £278,000 100% comparator group of UK and international companies for 50% the Company’s competitors. This is then compared to the return by an equivalent notional investment of £100 in Petrofac over the same period. bonus into Company shares. Under the plan, the shares which are of the award; and acquired with a participant’s cash bonus are called ‘Invested The Committee proposes to increase the maximum cash bonus (ii) Earnings per Share (EPS) growth relative to predefined targets Shares’. Following such an investment, the Company will generally that may be awarded to executive Directors to 200% of basic for 50% of the award. grant the participant an additional award over a number of shares salary with effect from the 2010 performance year, in order to being a specified ratio to the number of his or her invested shares further incentivise exceptional performance. Bonuses will continue and these awards are called ‘Matching Shares’. To date, Matching to be determined based on achievement of financial, safety and Shares have been awarded to participants on the basis of a 1:1 personal performance targets over the relevant financial year. ratio, the sole exceptions to this being two awards made in 2006 to an executive Director and senior executive, respectively: in these particular cases, it was felt to be inappropriate to grant any Matching Shares. 82 83 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ remuneration report

Directors’ remuneration report continued

Subject to a participant’s continued employment at the time of Funding policy in relation to share incentive plans Executive Directors’ service contracts vesting, invested and matching share awards may either vest 100% In 2007, the Board approved a funding policy in relation to the Each of the executive Directors has a 12-month rolling service contract with the Company and is contractually restricted to a termination on the third anniversary of grant; or alternatively, vest one-third on Company’s employee benefit trust, which holds shares to be used payment equal to 12 months’ salary and benefits. Further, each executive Director is subject to re-election by shareholders the first anniversary of grant, one-third on the second anniversary to satisfy awards under the Company’s DBSP, PSP and RSP. The at least every three years. None of the executive Directors is currently subject to a contractual retirement date. Details of the directors’ of grant and the final third on the third anniversary of grant. The Company reviews its contingent obligations under the above listed service contracts are disclosed in the table below: Remuneration Committee uses its discretion to determine whether share incentive schemes on a quarterly basis with a view to or not a participant should be subject to either three-year cliff or ensuring that the employee benefit trust should purchase under Number of months’ notice annual vesting (or a mixture thereof) but in doing so, takes a loan arrangement with the group and hold shares, sufficient to Name of executive Director Date of service contract (and date first appointed) Last re-elected Next due for re-election Company Director management’s recommendations into consideration. cover between 80% to 100% of its maximum liability at any time Ayman Asfari 13 September 2005 (11 January 2002) 2008 AGM 2011 AGM 12 12 under the three schemes. Maroun Semaan 13 September 2005 (11 January 2002) 2009 AGM 2012 AGM 12 12 In 2007, the Remuneration Committee decided that neither Amjad Bseisu¹ 13 September 2005 (11 May 2007) 2009 AGM n/a 12 12 executive Directors nor the most senior members of management Performance graph should participate in the scheme as there are no performance The Company’s Total Shareholder Return is defined as the Keith Roberts 13 September 2005 (6 April 2002) 2008 AGM 2011 AGM 12 12 conditions attached to such awards. If executive Directors or Company’s share price growth plus any dividends used to acquire 1 Amjad Bseisu will be stepping down from the Board subject to the successful admission to listing of EnQuest PLC. members of the group’s most senior management are considered further shares in Petrofac. For shareholders’ information, the for DBSP participation in future years, the Company undertakes Company’s TSR performance since the Company was admitted Executive Directors are entitled to accept up to one Non-executive Directorship outside and unconnected to the group provided prior not to make matching awards, unless such awards are subject to to listing on the London Stock Exchange in October 2005 is shown permission is sought from the Board. Any fees earned from such an appointment are retained by the director. No executive Director suitably stretching performance conditions and a deferral period of on the graph below compared with the performance achieved by currently holds any such external directorships. at least three years. the FTSE 100 Index and the FTSE 250 Index (excluding investment trusts). The Committee believes that due to Petrofac rejoining the Non-executive Directors Restricted Share Plan (RSP) FTSE 100 Index in March 2009, both of these indices are useful to Details of current individual non-executive Directors’ contracts for services are given in the table below. These Directors are not part of Under the RSP, selected employees are made grants of shares on allow a meaningful assessment of the Company’s performance any pension, bonus or share incentive scheme of the Company or group. Directors are subject to re-election at least every three years an ad hoc basis throughout the year. The Committee intends that during this period. and are typically expected to serve two three-year terms. the scheme is used primarily, but not exclusively, to make awards to individuals who join the group part way through the year, having 600 None of the Non-executive Directors has a service contract and none is entitled to compensation on leaving the Board save that, if Governance left accrued benefits with a previous employer. The Committee requested to resign, the Chairman and each Non-executive Director is entitled to receive prior notice or fees in lieu of notice as in the periodically monitors the level of awards. Executive Directors are 500 table below. not eligible to participate in the scheme. 400 Date of latest letter of appointment General meeting at Required notice from Name of Director (and date first appointed) which last re-elected Next due for re-election Company (in months) The Petrofac approved Share Incentive Plan (SIP) 300 Under the SIP, all UK employees, including UK resident directors, Rodney Chase 13 September 2005 (21 June 2005) 2008 AGM 2011 AGM 3 may invest up to £1,500 per tax year of gross salary (or, if less, 200 Kjell Almskog 13 September 2005 (23 March 2005) 2009 AGM 2012 AGM 3 10% of salary) to purchase ordinary shares. There is no holding Bernard de Combret¹ 13 September 2005 (19 November 2003) 2007 AGM n/a 3 period for these shares. 100 Michael Press¹ 13 September 2005 (30 April 2002) 2007 AGM n/a 3 TSR (rebased to 100 on listing date) TSR (rebased Rijnhard van Tets 2 February 2007 (11 May 2007) 2007 AGM 2010 AGM 3 Dividends and voting rights in respect of shares awarded 0 Oct Feb Jun Oct Feb Jun Oct Feb Jun Oct Feb Jun Oct Dec 1 Bernard de Combret and Michael Press will be stepping down from the Board after the 2010 AGM and as such will not be offering themselves for re-election. under the group’s share incentive schemes 05 06 06 06 07 07 07 08 08 08 09 09 09 09 Participants in the PSP, DBSP and RSP have no dividend or voting rights in respect of their respective awards until such time as their Petrofac Source: Datastream With effect from 1 January 2010, with the exception of the Chairman, Non-executive Directors will be paid a basic annual fee of £55,000 FTSE 250 (excluding investment trusts) for their role on the Board (2009: £47,000) and further annual fees of £12,000 per chairmanship of a committee (2009: £8,000), and awards vest. However, when the Company pays a dividend, the FTSE 100 number of shares comprised in an award will be increased by the £12,000 for acting as the senior independent director (2009: £8,000). The Board as a whole is responsible for deciding Non-executive number of shares which could have been acquired with the Directors’ fees unless such fees exceed £500,000 in aggregate, in which case shareholder approval in general meeting would be sought. amount of dividend received had the participant been the owner of the award shares. The vesting of the extra shares will be subject to The remuneration of the Chairman of the Board is set by the Remuneration Committee. The Chairman’s fee is all inclusive and is the same performance conditions as the original award shares. currently £100,000 per year, having last been considered by the Remuneration Committee in 2006. However, it is proposed to increase the Chairman’s fee to £120,000 with effect from 21 June 2010. Participants in the SIP receive dividends in respect of their shares like any other shareholder. The trustee invites participants prior to a general meeting to indicate how he or she wishes the trustee to vote in respect of his or her shares on any resolution(s) to be put to shareholders in general meeting. 84 85 Petrofac Annual report Petrofac Annual report and accounts 2009 and accounts 2009 Directors’ remuneration report

Directors’ remuneration report continued

Audited information Awards of shares under the PSP Amount of each Director’s emoluments in the relevant financial year Awards of shares during the year to executive Directors under the PSP are disclosed in the table below: The remuneration of each Director in respect of 2009 (with 2008 comparison) comprised: % of Number of Shares granted Number of Salaries Cash 2009 2008 basic salary shares at in year Dividend shares at Date & fees allowances Benefits Cash bonus total total Director and in year 31 December under annual shares granted Lapsed Vested 31 December upon which Market price 1 1 2 1 US$’000 US$’0001 US$’0002 US$’000 US$’000 US$’000 date of grant of grant 2008 award cycle in the year in year in year 2009 shares vest on date of grant Executive Directors Ayman Asfari Ayman Asfari3 722 63 44 1,136 1,965 1,794 24 April 2006 71.4 72,894 – – – 72,894 Nil3 24 April 2009 353p Maroun Semaan 450 217 52 675 1,394 1,189 19 March 2007 100.0 93,235 – 2,436 – – 95,6713 19 March 2010 415p Keith Roberts³ 435 47 1 451 934 1,052 19 March 2008 122.7 101,383 – 2,649 – – 104,032 4 19 March 2011 522p Non-executive Directors 19 March 2009 130.9 – 113,572 2,967 – – 116,539 4 19 March 2012 545p Rodney Chase 158 – – – 158 188 Maroun Semaan Kjell Almskog 87 – – – 87 95 24 April 2006 70.0 38,877 – – – 38,877 Nil3 24 April 2009 353p Bernard de Combret 87 – – – 87 95 19 March 2007 100.0 44,053 – 1,151 – – 45,2043 19 March 2010 415p Michael Press 87 – – – 87 82 19 March 2008 123.7 46,534 – 1,216 – – 47,750 4 19 March 2011 522p Rijnhard van Tets 87 – – – 87 95 19 March 2009 122.2 – 71,402 1,865 – – 73,267 4 19 March 2012 545p 2,543 374 98 2,708 5,723 5,589 Amjad Bseisu 3 1 Payment in lieu of pension allowance and other benefits for UK resident Directors and end of service indemnity and various allowances for the UAE resident 24 April 2006 72.8 46,167 – – – 46,167 Nil 24 April 2009 353p director. None of the Directors are eligible to receive pension contributions from the Company. 19 March 2007 100.0 54,386 – 1,421 – – 55,8073 19 March 2010 415p 2 Ayman Asfari’s benefits primarily relate to the employment of a personal assistant who spends part of her time in the administration of his philanthropic work: 19 March 2008 92.3 45,059 – 1,177 – – 46,236 4 19 March 2011 522p and Maroun Semaan receives, inter alia, benefits in relation to his children’s education and return flights to his permanent home. 4 3 UK-based Directors are paid in Sterling. Amounts have been translated to US Dollars based on the prevailing rate at the date of payment or award with the 19 March 2009 90.9 – 46,930 1,226 – – 48,156 19 March 2012 545p

exception of the bonus amounts, which have been translated using the closing rate for the year. Keith Roberts Governance 24 April 2006 71.4 48,596 – – – 48,596 Nil3 24 April 2009 353p 19 March 2007 100.0 56,977 – 1,488 – – 58,4653 19 March 2010 415p 19 March 2008 88.9 45,059 – 1,177 – – 46,236 4 19 March 2011 522p 19 March 2009 95.0 – 49,558 1,294 – – 50,852 4 19 March 2012 545p 1 The awards which are disclosed are the maximum number which can vest under the performance conditions attached to awards made under the PSP. The performance conditions under which these awards would vest in full are explained on pages 80 and 81. 2 Dividends awarded on the shares granted under the PSP are reinvested to buy further shares. 3 The performance conditions for the April 2006 PSP award were satisfied and the award vested in full during the year. The share price of the shares on the date of vesting (24 April 2009) was 588p. Shares awarded on 19 March 2007 have satisfied their performance conditions in full and will therefore vest 100% on 19 March 2010. Based on a share price of 1027p, which is the share price at 26 February 2010 being the latest practicable date prior to the adoption of this Report by the Remuneration Committee, the values of the awards made to the executive Directors would be as follows: Ayman Asfari: £982,541; Amjad Bseisu: £573,138; Keith Roberts: £600,436; and Maroun Semaan: £464,245. 4 Shares awarded on 19 March 2008 and 19 March 2009 are not due to vest until 19 March 2011 and 2012, respectively. It is too early, in the Committee’s opinion, to provide shareholders with a meaningful assessment to the extent that these shares will vest, if at all. 86 87 Petrofac Annual report Petrofac Annual report Statement of Directors’ and accounts 2009 and accounts 2009 responsibilities

Directors’ remuneration report Statement of Directors’ responsibilities continued

Award of shares under the DBSP Directors’ responsibilities Keith Roberts was granted 31,153 shares under the DBSP on 24 April 2006. The award was made solely in respect of Invested Shares. The Directors are responsible for preparing the Annual Report, the group financial statements and the parent company financial No Matching Shares were granted. Following the award of dividend shares in 2006, 2007 and 2008 the number of Invested Shares was statements in accordance with applicable law and regulations. The Directors have chosen to prepare the group financial statements 32,399 shares on 31 December 2008. The award vested in full on 24 April 2009. The market price at the date of grant was 353p and the and the parent company financial statements in accordance with International Financial Reporting Standards. The Directors are also market price on 24 April 2009 was 588p. responsible for the preparation of the Remuneration Report and Corporate Governance Report, which they have chosen to prepare, being under no obligation to do so under Jersey law. Sums paid to third parties in respect of executive Directors’ services No sums were paid to third parties in respect of any executive Director’s services (2008: nil). Jersey Company law requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles. The financial statements are required by law to give a true and fair view of the state of affairs of the Directors’ beneficial shareholdings at 31 December 2009 Company and group at the period end and the profit or loss of the Company and group for the period then ended. In preparing these Directors’ personal shareholdings, which include family interests and which are not related to their remuneration, have been disclosed financial statements, the Directors should: under the requirements of the UKLA listing rules and are as follows: ■ select suitable accounting policies and then apply them consistently Number of Number of shares as at shares as at ■ make judgements and estimates that are reasonable and prudent 31 December 2009 31 December 2008 ■ specify which generally accepted accounting principles have been adopted in their preparation Executive Directors Ayman Asfari 53,782,114 53,782,114 ■ prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue Maroun Semaan 30,607,676 30,568,799 in business Keith Roberts 2,120,000 2,120,000 The Directors are responsible for keeping proper accounting records which are sufficient to show and explain its transactions and as Non-executive Directors such as to disclose with reasonable accuracy at any time the financial position of the Company and group and enable them to ensure Rodney Chase 800,000 800,000 that the financial statements prepared by the Company comply with the Law. They are also responsible for safeguarding the assets of Kjell Almskog 400,000 400,000 the Company and group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Bernard de Combret 700,000 700,000 Michael Press 240,000 240,000 The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s Governance website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other Rijnhard van Tets 100,000 100,000 jurisdictions.

The Company’s share price at the end of the financial year was 1043p and the market price during the year was in the range 349p Directors’ approach to 1063p. The Board’s objective is to present a balanced and understandable assessment of the Company’s position and prospects, particularly in the Annual Report, Half Year Report (formerly the Interim Report) and other published documents and reports to regulators. The Board Changes since the year end has established an Audit Committee to assist with this obligation. There have been no changes since the year end to the information disclosed in this Report. Going concern Annual General Meeting approval The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out The Remuneration Report will be submitted for approval to the Annual General Meeting to be held on Thursday, 13 May 2010. in the Business Review on pages 18 to 52. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 50 to 52. In addition, note 31 to the financial statements include the Company’s objectives, On behalf of the Board policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. Bernard de Combret Chairman of the Remuneration Committee The Company has considerable financial resources together with long-term contracts with a number of customers and suppliers across 5 March 2010 different geographic areas and industries. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 88 89 Petrofac Annual report Petrofac Annual report Consolidated and accounts 2009 and accounts 2009 income statement

Independent auditors’ report Consolidated income statement To the members of Petrofac Limited For the year ended 31 December 2009

We have audited the group financial statements of Petrofac Limited Scope of the audit of the financial statements 2009 2008 (‘the Company’) and its subsidiaries (together ‘the group’) for the An audit involves obtaining evidence about the amounts and Notes US$’000 US$’000 year ended 31 December 2009 which comprise the consolidated disclosures in the financial statements sufficient to give reasonable Revenue 4a 3,655,426 3,329,536 income statement, the consolidated statement of comprehensive assurance that the financial statements are free from material Cost of sales 4b (3,035,120) (2,776,661) income, the consolidated statement of financial position, the misstatement, whether caused by fraud or error. This includes an Gross profit 620,306 552,875 consolidated cash flow statement, the consolidated statement assessment of: whether the accounting policies are appropriate to Selling, general and administration expenses 4e (180,197) (202,167) of changes in equity and the related notes 1 to 33. The financial the group’s circumstances and have been consistently applied and reporting framework that has been applied in their preparation adequately disclosed; the reasonableness of significant accounting Other income 4c 4,075 7,421 is applicable Jersey law and International Financial Reporting estimates made by the Directors; and the overall presentation of Other expenses 4d (2,998) (2,543) Standards (IFRSs). the financial statements. Profit from operations before tax and finance income/(costs) 441,186 355,586 Finance costs 5 (5,582) (13,906) We have reported separately on the parent company financial Opinion on financial statements Finance income 5 11,942 16,688 statements of Petrofac Limited for the year ended 31 December In our opinion the group financial statements: Profit before tax 447,546 358,368 2009 and on the information in the Directors’ Remuneration Report ■ give a true and fair view, in accordance with International Financial that is described as having been audited. Reporting Standards, of the state of the group’s affairs as at Income tax expense 6 (84,515) (93,379) 31 December 2009 and of its profit for the year then ended; and Profit for the year 363,031 264,989 This report is made solely to the Company’s members as a body, ■ have been properly prepared in accordance with the requirements in accordance with the provisions of our engagement letter and of the Companies (Jersey) Law 1991. Attributable to: Article 110 of the Companies (Jersey) Law 1991. Our audit work Petrofac Limited shareholders 353,603 264,989 has been undertaken so that we might state to the Company’s Matters on which we are required to report by exception Minority interests 9,428 – members those matters we are required to state to them in an We have nothing to report in respect of the following: auditor’s report and for no other purpose. To the fullest extent Under the Companies (Jersey) Law 1991 we are required to report 363,031 264,989 permitted by law, we do not accept or assume responsibility to to you if, in our opinion: anyone other than the Company and the Company’s members ■ proper accounting records have not been kept by the Company; as a body, for our audit work, for this report, or for the opinions ■ the Company’s accounts are not in agreement with the Earnings per share (US cents) 7 we have formed. accounting records; or Basic 104.78 78.03 ■ we have not received all the information and explanations we Diluted 103.19 77.11 Respective responsibilities of Directors and auditors require for our audit. As explained more fully in the Statement of Directors’ The Company requested that we review: The attached notes 1 to 33 form part of these consolidated financial statements. Responsibilities set out on page 87, the Company’s Directors are ■ the Directors’ statement set out on page 87, in relation to going responsible for the preparation of the group financial statements concern; and and for being satisfied that they give a true and fair view. The ■ the part of the Corporate Governance Statement on page 69 Directors are also responsible for the preparation of the Corporate relating to the Company’s compliance with the nine provisions of Governance Report, which they have chosen to prepare on the June 2008 Combined Code which for a listed UK-incorporated a voluntary basis. company, are specified for review by the Company’s auditor by

the Listing Rules of the Financial Services Authority. Financial statements Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Other matter Auditing (UK and Ireland). Those standards require us to comply We have reported separately on the parent company financial with the Auditing Practices Board’s (APB’s) Ethical Standards statements of Petrofac Limited for the year ended 31 December for Auditors. 2009 and on the information in the Directors’ Remuneration Report that is described as having been audited. In addition the Company has also instructed us to review whether the Corporate Governance Report reflects the Company’s Ernst & Young LLP compliance with the nine provisions of the 2008 Combined London Code and the Directors’ statement on going concern which, 5 March 2010 for a listed UK-incorporated company, are specified for review by the Company’s auditor by the Listing Rules of the Financial Services Authority. 90 91 Petrofac Annual report Petrofac Annual report Consolidated statement and accounts 2009 and accounts 2009 of financial position

Consolidated statement of comprehensive income Consolidated statement of financial position For the year ended 31 December 2009 At 31 December 2009

2009 2008 2009 2008 Notes US$’000 US$’000 Notes US$’000 US$’000 Profit for the year 363,031 264,989 Assets Foreign currency translation 15,087 (84,232) Non-current assets Net gains on maturity of cash flow hedges Property, plant and equipment 9 677,996 413,064 recycled in the year 23 (4,303) (32,103) Goodwill 11 97,922 97,534 Net changes in fair value of derivatives and Intangible assets 12 73,107 38,353 financial assets designated as cash flow hedges 29,229 (25,907) Available-for-sale financial assets 14 539 566 Net changes in the fair value of available-for-sale Other financial assets 15 12,535 9,126 financial assets – (879) Deferred income tax assets 6c 49,726 46,444 Impairment of available-for-sale financial assets 14 – 355 911,825 605,087 Other comprehensive income/(loss) 40,013 (142,766) Current assets Total comprehensive income for the year 403,044 122,223 Inventories 16 9,798 4,077 Work in progress 17 333,698 252,695 Attributable to: Trade and other receivables 18 878,670 700,931 Petrofac Limited shareholders 389,416 122,223 Due from related parties 30 18,260 2,907 Minority interests 13,628 – Other financial assets 15 30,957 9,709 403,044 122,223 Cash and short-term deposits 19 1,417,363 694,415

The attached notes 1 to 33 form part of these consolidated financial statements. 2,688,746 1,664,734 Total assets 3,600,571 2,269,821

Equity and liabilities Equity attributable to Petrofac Limited shareholders Share capital 20 8,638 8,636 Share premium 69,712 68,203 Capital redemption reserve 10,881 10,881 Shares to be issued 10 1,988 1,988 Treasury shares 21 (56,285) (69,333) Other reserves 23 21,194 (39,292) Retained earnings 834,382 577,739 890,510 558,822 Financial statements Minority interests 16,245 209 Total equity 906,755 559,031

Non-current liabilities Interest-bearing loans and borrowings 24 59,195 88,188 Provisions 25 92,103 29,663 Other financial liabilities 26 27,485 32,265 Deferred income tax liabilities 6c 42,192 38,196 220,975 188,312 Current liabilities Trade and other payables 27 967,791 513,329 Due to related parties 30 57,326 559 Interest-bearing loans and borrowings 24 58,071 54,412 Other financial liabilities 26 3,634 6,362 Income tax payable 88,219 110,428 Billings in excess of cost and estimated earnings 17 461,144 285,527 Accrued contract expenses 28 836,656 551,861 2,472,841 1,522,478 Total liabilities 2,693,816 1,710,790 Total equity and liabilities 3,600,571 2,269,821

The financial statements on pages 89 to 129 were approved by the Board of Directors on 5 March 2010 and signed on its behalf by Keith Roberts – Chief Financial Officer.

The attached notes 1 to 33 form part of these consolidated financial statements. 92 93 Petrofac Annual report Petrofac Annual report Consolidated statement and accounts 2009 and accounts 2009 of changes in equity

Consolidated cash flow statement Consolidated statement of changes in equity For the year ended 31 December 2009 For the year ended 31 December 2009

2009 2008 Attributable to shareholders of Petrofac Limited Notes US$’000 US$’000 Issued Capital Operating activities share Share redemption Shares to Treasury* Other Retained Minority Total Profit before tax 447,546 358,368 capital premium reserve be issued shares reserves earnings Total interests equity US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Adjustments for: (note 21) (note 23) Depreciation, amortisation, impairment and write-off 4b, 4e 117,780 63,366 Balance at 1 January 2009 8,636 68,203 10,881 1,988 (69,333) (39,292) 577,739 558,822 209 559,031 Share-based payments 4f 13,263 9,448 Net profit for the year – – – – – – 353,603 353,603 9,428 363,031 Difference between other long-term employment benefits Other comprehensive income – – – – – 35,813 – 35,813 4,200 40,013 paid and amounts recognised in the income statement 7,905 9,007 Total comprehensive income Net finance (income) 5 (6,360) (2,782) for the year – – – – – 35,813 353,603 389,416 13,628 403,044 (Gain)/loss on disposal of property, plant and equipment 4b,4d (784) 41 Shares issued on acquisition Other non-cash items, net (3,233) 11,303 (note 10) 2 1,509 – – – – – 1,511 – 1,511 Operating profit before working capital changes 576,117 448,751 Share-based payments charge Trade and other receivables (176,773) (194,817) (note 22) – – – – – 13,263 – 13,263 – 13,263 Work in progress (81,003) 17,486 Shares vested during the Due from related parties (15,353) 240 year (note 21) – – – – 13,048 (12,617) (431) – – – Inventories (5,721) (1,821) Transfer to reserve for share- based payments (note 22) – – – – – 10,942 – 10,942 – 10,942 Other current financial assets (4,775) (1,680) Deferred tax on share-based Trade and other payables 466,469 104,708 payment reserve – – – – – 13,085 – 13,085 – 13,085 Billings in excess of cost and estimated earnings 175,617 77,422 Capital injection by Accrued contract expenses 284,795 138,395 minority interests – – – – – – – – 2,408 2,408 Due to related parties 56,767 (185) Dividends (note 8) – – – – – – (96,529) (96,529) – (96,529) Other current financial liabilities 177 – Balance at 31 December 2009 8,638 69,712 10,881 1,988 (56,285) 21,194 834,382 890,510 16,245 906,755 1,276,317 588,499 Other non-current items, net (58) (1,927) Attributable to shareholders of Petrofac Limited Cash generated from operations 1,276,259 586,572 Issued Capital share Share redemption Shares to Treasury* Other Retained Minority Total Interest paid (3,351) (11,526) capital premium reserve be issued shares reserves earnings Total interests equity Income taxes paid, net (87,714) (67,418) US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 (note 21) (note 23) Net cash flows from operating activities 1,185,194 507,628 Balance at 1 January 2008 as previously reported 8,636 68,203 10,881 – (29,842) 50,467 377,450 485,795 209 486,004 Investing activities Financial statements Purchase of property, plant and equipment (317,174) (255,542) Restatement – – – – – 36,966 – 36,966 – 36,966 Balance at 1 January 2008 Acquisition of subsidiaries, net of cash acquired 10 – (40,774) as restated 8,636 68,203 10,881 – (29,842) 87,433 377,450 522,761 209 522,970 Purchase of other intangible assets 12 (10,375) – Net profit for the year – – – – – – 264,989 264,989 – 264,989 Purchase of intangible oil & gas assets 12 (29,230) (37,036) Other comprehensive loss – – – – – (142,766) – (142,766) – (142,766) Purchase of available-for-sale financial assets (106) – Total comprehensive Proceeds from disposal of property, plant and equipment 1,333 1,031 income/(loss) for the year – – – – – (142,766) 264,989 122,223 – 122,223 Proceeds from disposal of available-for-sale financial assets 95 – Shares to be issued on acquisition Interest received 12,158 16,704 (note 10) – – – 1,988 – – – 1,988 – 1,988 Net cash flows used in investing activities (343,299) (315,617) Share-based payments charge (note 22) – – – – – 9,448 – 9,448 – 9,448 Financing activities Shares vested during the year Proceeds from interest-bearing loans and borrowings – 25,000 (note 21) – – – – 3,009 (3,009) – – – – Repayment of interest-bearing loans and borrowings (9,958) (6,213) Treasury shares purchased Proceeds from capital injection by minority interest 2,408 – (note 21) – – – – (42,500) – – (42,500) – (42,500) Treasury shares purchased 21 – (42,500) Transfer to reserve for share- Equity dividends paid (98,995) (64,135) based payments (note 22) – – – – – 9,602 – 9,602 – 9,602 Net cash flows used in financing activities (106,545) (87,848) Dividends (note 8) – – – – – – (64,700) (64,700) – (64,700) Balance at 31 December 2008 8,636 68,203 10,881 1,988 (69,333) (39,292) 577,739 558,822 209 559,031 Net increase in cash and cash equivalents 735,350 104,163 * Shares held by Petrofac Employee Benefit Trust. Net foreign exchange difference on cash and cash equivalents 6,235 (20,890) Cash and cash equivalents at 1 January 649,159 565,886 The attached notes 1 to 33 form part of these consolidated financial statements. Cash and cash equivalents at 31 December 19 1,390,744 649,159

The attached notes 1 to 33 form part of these consolidated financial statements. 94 95 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements For the year ended 31 December 2009

1 Corporate information IAS 1 ‘Presentation of Financial Statements (Revised)’ Significant accounting judgements and estimates ■ Units of production depreciation: estimated proven plus probable The consolidated financial statements of Petrofac Limited (the The revised standard requires that items of income and expenses, Judgements reserves are used in determining the depreciation of oil & gas ‘Company’) for the year ended 31 December 2009 were authorised which are non-owner changes in equity, be presented separately in In the process of applying the group’s accounting policies, assets such that the depreciation charge is proportional to the for issue in accordance with a resolution of the Directors on a statement of comprehensive income either separately as a single management has made the following judgements, apart from depletion of the remaining reserves over their life of production. 5 March 2010. statement or as two statements along with the income statement. those involving estimations, which have the most significant These calculations require the use of estimates and assumptions The group has decided to opt for the former and present a single effect on the amounts recognised in the financial statements: including the amount of economically recoverable reserves and Petrofac Limited is a limited liability company registered and domiciled separate statement of comprehensive income. ■ Revenue recognition on fixed-price engineering, procurement estimates of future oil & gas capital expenditure. in Jersey under the Companies (Jersey) Law 1991 and is the holding and construction contracts: the group recognises revenue company for the international group of Petrofac subsidiaries (together IFRS 7 ‘Financial Instruments: Disclosures (Amendments)’ on fixed-price engineering, procurement and construction Interests in joint ventures ‘the group’). The Company’s 31 December 2009 financial statements The amendments require additional disclosures about the fair contracts using the percentage-of-completion method, based The group has a number of contractual arrangements with other are shown on pages 131 to 142. The group’s principal activity is the value measurement and liquidity risk. The disclosures require that on surveys of work performed. The group has determined this parties which represent joint ventures. These take the form of provision of facilities solutions to the oil & gas production and for each item recorded at fair value, a fair value measurement basis of revenue recognition is the best available measure of agreements to share control over other entities (‘jointly controlled processing industry. hierarchy be disclosed based on the source of inputs for progress on such contracts. entities’) and commercial collaborations (‘jointly controlled ascertaining the fair values of such items. The amendment also operations’). The group’s interests in jointly controlled entities are A full listing of all group companies, and joint venture companies, requires the disclosure of liquidity risk with respect to derivative Estimation uncertainty accounted for by proportionate consolidation, which involves is contained in note 33 to these consolidated financial statements. financial instruments used for liquidity management. The adoption The key assumptions concerning the future and other key sources recognising the group’s proportionate share of the joint venture’s in the current year of the amendment has resulted in additional of estimation uncertainty at the balance sheet date, that have a assets, liabilities, income and expenses with similar items in the 2 Summary of significant accounting policies disclosure but does not have an impact on the accounting policies significant risk of causing a material adjustment to the carrying consolidated financial statements on a line-by-line basis. Where Basis of preparation and measurement basis adopted by the group. amounts of assets and liabilities within the next financial year are the group collaborates with other entities in jointly controlled The consolidated financial statements have been prepared on a discussed below: operations, the expenses the group incurs and its share of the historical cost basis, except for derivative financial instruments and IFRS 8 ‘Operating Segments’ ■ Project cost to complete estimates: at each balance sheet date revenue earned is recognised in the income statement. Assets available-for-sale financial assets which have been measured at This standard introduces the management approach to segment the group is required to estimate costs to complete on fixed price controlled by the group and liabilities incurred by it are recognised fair value. The presentation currency of the consolidated financial reporting which requires the disclosure of segment information contracts. Estimating costs to complete on such contracts in the balance sheet. Where necessary, adjustments are made statements is United States Dollars and all values in the financial based on the internal reports regularly reviewed by the group’s requires the group to make estimates of future costs to be to the financial statements of the group’s jointly controlled entities statements are rounded to the nearest thousand (US$’000) except Chief Operating Decision Maker in order to assess each segment’s incurred, based on work to be performed beyond the balance and operations to bring their accounting policies into line with where otherwise stated. Certain comparative information has been performance and allocate resources to them. The adoption of sheet date. those of the group. reclassified to conform to current period presentation. this standard during 2009 has not had any impact on the financial position of the group. However, the segment information disclosed ■ Onerous contract provisions: the group provides for future losses Foreign currency translation Statement of compliance has changed as a result of the recent internal restructuring of on long-term contracts where it is considered probable that the The Company’s functional and presentational currency is United The consolidated financial statements of Petrofac Limited and its the group. contract costs are likely to exceed revenues in future years. States Dollars. In the accounts of individual subsidiaries, subsidiaries have been prepared in accordance with International Estimating these future losses involves a number of assumptions transactions in currencies other than a company’s functional Financial Reporting Standards (IFRS) and applicable requirements Certain new standards, amendments to and interpretations of about the achievement of contract performance targets and the currency are recorded at the prevailing rate of exchange at the date of Jersey law. existing standards have been issued and are effective for the likely levels of future cost escalation over time. of the transaction. At the year end, monetary assets and liabilities group’s accounting periods beginning on or after 1 January 2010 denominated in foreign currencies are retranslated at the rates of Basis of consolidation or later periods which the group has not early adopted. Those ■ Impairment of goodwill: the group determines whether goodwill is exchange prevailing at the balance sheet date. Non-monetary

The consolidated financial statements comprise the financial that are applicable to the group are as follows: impaired at least on an annual basis. This requires an estimation assets and liabilities that are measured at historical cost in a Financial statements statements of Petrofac Limited and its subsidiaries. The financial of the value in use of the cash-generating units to which the foreign currency are translated using the rate of exchange as at the statements of its subsidiaries are prepared for the same reporting i) IFRS 3 ‘Business Combinations (Revised)’ effective for goodwill is allocated. Estimating the value in use requires the dates of the initial transactions. Non-monetary assets and liabilities year as the Company and where necessary, adjustments are made annual periods beginning on or after 1 July 2009, have been group to make an estimate of the expected future cash flows measured at fair value in a foreign currency are translated using the to the financial statements of the group’s subsidiaries to bring their enhanced to, amongst other matters, specify the accounting from each cash-generating unit and also to determine a suitable rate of exchange at the date the fair value was determined. All accounting policies into line with those of the group. treatments for acquisition costs, contingent consideration, discount rate in order to calculate the present value of those cash foreign exchange gains and losses are taken to the income pre-existing relationships and reacquired rights. The revised flows. The carrying amount of goodwill at 31 December 2009 statement with the exception of exchange differences arising on Subsidiaries are consolidated from the date on which control is standards include detailed guidance in respect of step was US$97,922,000 (2008: US$97,534,000). monetary assets and liabilities that form part of the group’s net transferred to the group and cease to be consolidated from the acquisitions and partial disposals of subsidiaries and associates investment in subsidiaries. These are taken directly to equity until date on which control is transferred out of the group. Control is as well as in respect of allocation of income to non-controlling ■ Deferred tax assets: the group recognises deferred tax assets on the disposal of the net investment at which time they are achieved where the Company has the power to govern the financial interests. Further, an option has been added to IFRS 3 to permit unused tax losses where it is probable that future taxable profits recognised in the income statement. and operating policies of an investee entity so as to obtain benefits an entity to recognise 100% of the goodwill of an acquired will be available for utilisation. This requires management to make from its activities. All intra-group balances and transactions, entity, not just the acquiring entity’s portion of the goodwill. The judgements and assumptions regarding the amount of deferred The balance sheets of overseas subsidiaries and joint ventures are including unrealised profits, have been eliminated on consolidation. impact of this standard on the group will be assessed when a tax that can be recognised as well as the likelihood of future translated into US Dollars using the closing rate method, whereby business combination transaction occurs. taxable profits. The carrying amount of recognised tax losses at assets and liabilities are translated at the rates of exchange Minority interests in subsidiaries consolidated by the group are 31 December 2009 was US$18,413,000 (2008: US$33,165,000). prevailing at the balance sheet date. The income statements of disclosed separately from the group’s equity and income ii) IAS 27 ‘Consolidated and Separate Financial Statements overseas subsidiaries and joint ventures are translated at average statement. Losses attributable to minority interests in excess of its (Amendments)’ effective for annual periods beginning on or ■ Income tax: the Company and its subsidiaries are subject to exchange rates for the year. Exchange differences arising on the interest in the net assets of the subsidiary are adjusted against the after 1 July 2009, prescribes accounting treatment in respect of routine tax audits and also a process whereby tax computations retranslation of net assets are taken directly to a separate interest of the group unless there is a binding obligation on the part change in ownership interest in a subsidiary, allocation of losses are discussed and agreed with the appropriate authorities. Whilst component of equity. of the minority to contribute additional investment in the subsidiary. incurred by a subsidiary between controlling and non-controller the ultimate outcome of such tax audits and discussions cannot interests and accounting for loss of interest in a subsidiary. This be determined with certainty, management estimates the level of On the disposal of a foreign entity, accumulated exchange New standards and interpretations may affect the group where a subsidiary with non-controlling provisions required for both current and deferred tax on the basis differences are recognised in the income statement as a The group has adopted new and revised Standards and Interpretations interest becomes loss making or, there is a change in ownership of professional advice and the nature of current discussions with component of the gain or loss on disposal. issued by the International Accounting Standards Board (IASB) interest in any of its subsidiaries. the tax authority concerned. and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective iii) IFRIC 17 ‘Distributions of Non-cash Assets to owners’ this ■ Recoverable value of intangible oil & gas and other intangible for accounting periods beginning on or after 1 January 2009. interpretation provides guidance in respect of accounting for assets: the group determines at each balance sheet date whether The principal effects of the adoption of these new and amended non-cash asset distributions to shareholders. This interpretation there is any evidence of impairment in the carrying value of its standards and interpretations are discussed below: is effective for periods beginning on or after 1 July 2009. intangible oil & gas and other intangible assets. This requires Management will consider its impact on the financial position management to estimate the recoverable value of its intangible of the group at the time of any such transaction. assets for example by reference to quoted market values, similar arm’s length transactions involving these assets or value in use calculations. 96 97 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

2 Summary of significant accounting policies continued which the goodwill is monitored for internal management purposes Such costs are subject to technical, commercial and management Where an impairment loss subsequently reverses, the carrying Property, plant and equipment and is not larger than an operating segment determined in review to confirm the continued intent to develop, or otherwise amount of the asset is increased to the revised estimate of its Property, plant and equipment is stated at cost less accumulated accordance with IFRS8 ‘Operating Segments’. extract value. When this is no longer the case, the costs are recoverable amount, but so that the increased carrying amount depreciation and any impairment in value. Cost comprises the written-off in the income statement. When such assets are does not exceed the carrying amount that would have been purchase price or construction cost and any costs directly Impairment is determined by assessing the recoverable amount of declared part of a commercial development, related costs are determined had no impairment loss been recognised for the asset attributable to making that asset capable of operating as intended. the cash-generating units to which the goodwill relates. Where the transferred to tangible oil & gas assets. All intangible oil & gas in prior years. A reversal of an impairment loss is recognised The purchase price or construction cost is the aggregate amount recoverable amount of the cash-generating units is less than the assets are assessed for any impairment prior to transfer and any immediately in the income statement, unless the relevant asset paid and the fair value of any other consideration given to acquire carrying amount of the cash-generating units and related goodwill, impairment loss is recognised in the income statement. is carried at a revalued amount, in which case the reversal of the the asset. Depreciation is provided on a straight-line basis other an impairment loss is recognised. impairment is treated as a revaluation increase. than on oil & gas assets at the following rates. Development expenditures Where goodwill has been allocated to cash-generating units and Expenditure relating to development of assets which include the Inventories Oil & gas facilities 10% – 12.5% part of the operation within those units is disposed of, the goodwill construction, installation and completion of infrastructure facilities Inventories are valued at the lower of cost and net realisable value. Plant and equipment 4% – 33% associated with the operation disposed of is included in the such as platforms, pipelines and development wells, is capitalised Net realisable value is the estimated selling price in the ordinary Buildings and leasehold improvements 5% – 33% carrying amount of the operation when determining the gain within property, plant and equipment. course of business, less estimated costs of completion and the (or shorter of the lease term) or loss on disposal of the operation. Goodwill disposed of in this estimated costs necessary to make the sale. Cost comprises Office furniture and equipment 25% – 100% circumstance is measured based on the relative values of the Changes in unit-of-production factors purchase price, cost of production, transportation and other Vehicles 20% – 33% operation disposed of and the portion of the cash-generating Changes in factors which affect unit-of-production calculations directly allocable expenses. Costs of inventories, other than units retained. are dealt with prospectively, not by immediate adjustment of prior raw materials, are determined using the first-in-first-out method. Tangible oil & gas assets are depreciated, on a field-by-field basis, years’ amounts. Costs of raw materials are determined using the weighted using the unit-of-production method based on entitlement to Deferred consideration payable on acquisition average method. proven and probable reserves, taking account of estimated future When, as part of a business combination, the group defers a Decommissioning development expenditure relating to those reserves. proportion of the total purchase consideration payable for an Provision for future decommissioning costs is made in full when Work in progress and billings in excess of cost and acquisition, the amount provided for is calculated based on the the group has an obligation to dismantle and remove a facility or estimated earnings Each asset’s estimated useful life, residual value and method of best estimate of the timing of additional payments discounted back an item of plant and to restore the site on which it is located, and Fixed price lump sum engineering, procurement and construction depreciation are reviewed and adjusted if appropriate at each to present value with the discount factor element recognised as a when a reasonable estimate of that liability can be made. The contracts are presented in the balance sheet as follows: financial year end. finance cost in the income statement. amount recognised is the present value of the estimated future ■ for each contract, the accumulated cost incurred, as well as expenditure. An amount equivalent to the discounted initial the estimated earnings recognised at the contract’s percentage No depreciation is charged on land or assets under construction. Intangible assets – non oil & gas assets provision for decommissioning costs is capitalised and amortised of completion less provision for any anticipated losses, after Intangible assets acquired in a business combination are initially over the life of the underlying asset on a unit-of-production basis deducting the progress payments received or receivable from The carrying amount of an item of property, plant and equipment is measured at cost being their fair values at the date of acquisition over proven and probable reserves. Any change in the present the customers, are shown in current assets in the balance sheet derecognised on disposal or when no future economic benefits are and are recognised separately from goodwill as the asset is value of the estimated expenditure is reflected as an adjustment under ‘Work in progress’ expected from its use or disposal. The gain or loss arising from the separable or arises from a contractual or other legal right and its to the provision and the oil & gas asset. ■ where the payments received or receivable for any contract derecognition of an item of property, plant and equipment shall be fair value can be measured reliably. After initial recognition, exceed the cost and estimated earnings less provision for any included in profit or loss when the item is derecognised. Gains are intangible assets are carried at cost less accumulated amortisation The unwinding of the discount applied to future decommissioning anticipated losses, the excess is shown as ‘Billings in excess not classified as revenue. and any accumulated impairment losses. Intangible assets with a provisions is included under finance costs in the income statement. of cost and estimated earnings’ within current liabilities

finite life are amortised over their useful economic life using a Financial statements Non-current assets held for sale straight-line method unless a better method reflecting the pattern Available-for-sale financial assets Trade and other receivables Non-current assets or disposal groups are classified as held for in which the asset’s future economic benefits are expected to be Investments classified as available-for-sale are initially stated Trade receivables are recognised and carried at original invoice sale when it is expected that the carrying amount of an asset will consumed can be determined. The amortisation charge in respect at fair value, including acquisition charges associated with amount less an allowance for any amounts estimated to be be recovered principally through sale rather than continuing use. of intangible assets is included in the selling, general and the investment. uncollectable. An estimate for doubtful debts is made when there Assets are not depreciated when classified as held for sale. administration expenses line of the income statement. The is objective evidence that the collection of the full amount is no expected useful lives of assets are reviewed on an annual basis. After initial recognition, available-for-sale financial assets are longer probable under the terms of the original invoice. Impaired Borrowing costs Any change in the useful life or pattern of consumption of the measured at their fair value using quoted market rates. Gains and debts are derecognised when they are assessed as uncollectable. Borrowing costs directly attributable to the construction of intangible asset is treated as a change in accounting estimate and losses are recognised as a separate component of equity until qualifying assets, which are assets that necessarily take a is accounted for prospectively by changing the amortisation period the investment is sold or impaired, at which time the cumulative Cash and cash equivalents substantial period of time to prepare for their intended use, are or method. Intangible assets are tested for impairment whenever gain or loss previously reported in equity is included in the Cash and cash equivalents consist of cash at bank and in hand added to the cost of those assets, until such time as the assets are there is an indication that the asset may be impaired. income statement. and short-term deposits with an original maturity of three months substantially ready for their intended use. All other borrowing costs or less. For the purpose of the cash flow statement, cash and are recognised as interest payable in the income statement in the Oil & gas assets Impairment of assets (excluding goodwill) cash equivalents consists of cash and cash equivalents as defined period in which they are incurred. Capitalised costs At each balance sheet date, the group reviews the carrying above, net of outstanding bank overdrafts. The group’s activities in relation to oil & gas assets are limited to amounts of its tangible and intangible assets to assess whether Goodwill assets in the evaluation, development and production phases. there is an indication that those assets may be impaired. If any Interest-bearing loans and borrowings Goodwill acquired in a business combination is initially measured such indication exists, the group makes an estimate of the asset’s All interest-bearing loans and borrowings are initially recognised at cost, being the excess of the cost of the business combination Oil & gas evaluation and development expenditure is accounted for recoverable amount. An asset’s recoverable amount is the higher at the fair value of the consideration received net of issue costs over the net fair value of the identifiable assets, liabilities and using the successful efforts method of accounting. of an asset’s fair value less costs to sell and its value in use. In directly attributable to the borrowing. contingent liabilities of the entity at the date of acquisition. assessing value in use, the estimated future cash flows attributable Following initial recognition, goodwill is measured at cost less any Evaluation expenditures to the asset are discounted to their present value using a pre-tax After initial recognition, interest-bearing loans and borrowings accumulated impairment losses. Goodwill is reviewed for Expenditure directly associated with evaluation (or appraisal) discount rate that reflects current market assessments of the time are subsequently measured at amortised cost using the effective impairment annually, or more frequently if events or changes in activities is capitalised as an intangible asset. Such costs include value of money and the risks specific to the asset. interest rate method. Amortised cost is calculated by taking circumstances indicate that such carrying value may be impaired. the costs of acquiring an interest, appraisal well drilling costs, into account any issue costs, and any discount or premium payments to contractors and an appropriate share of directly If the recoverable amount of an asset is estimated to be less than on settlement. For the purpose of impairment testing, goodwill acquired is attributable overheads incurred during the evaluation phase. For its carrying amount, the carrying amount of the asset is reduced allocated to the cash-generating units that are expected to benefit such appraisal activity, which may require drilling of further wells, to its recoverable amount. An impairment loss is recognised from the synergies of the combination. Each unit or units to which costs continue to be carried as an asset whilst related immediately in the income statement, unless the relevant asset is goodwill is allocated represents the lowest level within the group at hydrocarbons are considered capable of commercial development. carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 98 99 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

2 Summary of significant accounting policies continued The cost of equity-settled transactions is recognised, together with Revenues from reimbursable contracts are recognised in the Deferred income tax is recognised on all temporary differences at Provisions a corresponding increase in equity, over the period in which the period in which the services are provided based on the agreed the balance sheet date between the carrying amounts of assets Provisions are recognised when the group has a present legal or relevant employees become fully entitled to the award (the ‘vesting contract schedule of rates. and liabilities in the financial statements and the corresponding tax constructive obligation as a result of past events, it is probable that period’). The cumulative expense recognised for equity-settled bases used in the computation of taxable profit, with the following an outflow of resources will be required to settle the obligation and transactions at each reporting date until the vesting date reflects Provision is made for all losses expected to arise on completion exceptions: a reliable estimate can be made of the amount of the obligation. If the extent to which the vesting period has expired and the group’s of contracts entered into at the balance sheet date, whether or ■ where the temporary difference arises from the initial recognition the time value of money is material, provisions are discounted best estimate of the number of equity instruments that will not work has commenced on these contracts. of goodwill or of an asset or liability in a transaction that is not a using a current pre-tax rate that reflects, where appropriate, the ultimately vest. The income statement charge or credit for a period business combination that at the time of the transaction affects risks specific to the liability. Where discounting is used, the represents the movement in cumulative expense recognised as at Incentive payments are included in revenue when the contract is neither accounting nor taxable profit or loss increase in the provision due to the passage of time is recognised the beginning and end of that period. sufficiently advanced that it is probable that the specified ■ in respect of taxable temporary differences associated with in the income statement as a finance cost. performance standards will be met or exceeded and the amount of investments in subsidiaries, associates and joint ventures, where No expense is recognised for awards that do not ultimately vest, the incentive payments can be measured reliably. Claims are only the timing of reversal of the temporary differences can be Derecognition of financial assets and liabilities except for awards where vesting is conditional upon a market or included in revenue when negotiations have reached an advanced controlled and it is probable that the temporary differences will Financial assets non-vesting condition, which are treated as vesting irrespective of stage such that it is probable the claim will be accepted and can not reverse in the foreseeable future A financial asset (or, where applicable a part of a financial asset) whether or not the market or non-vesting condition is satisfied, be measured reliably. ■ deferred income tax assets are recognised only to the extent that is derecognised where: provided that all other performance conditions are satisfied. Equity it is probable that a taxable profit will be available against which ■ the rights to receive cash flows from the asset have expired awards cancelled are treated as vesting immediately on the date of Facilities management, engineering and training services the deductible temporary differences, carried forward tax credits ■ the group retains the right to receive cash flows from the asset, cancellation, and any expense not recognised for the award at that (Offshore Engineering & Operations, Engineering, Training or tax losses can be utilised but has assumed an obligation to pay them in full without material date is recognised in the income statement. Services and Production Solutions) delay to a third party under a pass-through arrangement or Revenues from reimbursable contracts are recognised in the The carrying amount of deferred income tax assets is reviewed ■ the group has transferred its rights to receive cash flows from the Petrofac Employee Benefit Trust period in which the services are provided based on the agreed at each balance sheet date and reduced to the extent that it is asset and either a) has transferred substantially all the risks and The Petrofac Employee Benefit Trust was established on 7 March contract schedule of rates. no longer probable that sufficient taxable profit will be available rewards of the asset, or b) has neither transferred nor retained 2007 to warehouse ordinary shares purchased to satisfy various to allow all or part of the deferred income tax assets to be utilised. substantially all the risks and rewards of the asset, but has new share scheme awards made to the employees of the Revenues from fixed-price contracts are recognised on the Unrecognised deferred income tax assets are reassessed at each transferred control of the asset Company, which will be transferred to the members of the scheme percentage-of-completion method, measured by milestones balance sheet date and are recognised to the extent that it has on their respective vesting dates subject to satisfying the completed or earned value once the outcome of a contract can be become probable that future taxable profit will allow the deferred Financial liabilities performance conditions of each scheme. The trust has been estimated reliably. In the early stages of contract completion, when tax asset to be recovered. A financial liability is derecognised when the obligation under the presented as part of both the Company and group financial the outcome of a contract cannot be estimated reliably, contract liability is discharged or cancelled or expires. statements in accordance with SIC 12 ‘Special Purpose Entities’. revenues are recognised only to the extent of costs incurred that Deferred income tax assets and liabilities are measured on an The cost of shares temporarily held by Petrofac Employee Benefit are expected to be recoverable. undiscounted basis at the tax rates that are expected to apply If an existing financial liability is replaced by another from the Trust are reflected as treasury shares and deducted from equity. when the asset is realised or the liability is settled, based on tax same lender, on substantially different terms, or the terms of an Incentive payments are included in revenue when the contract is rates and tax laws enacted or substantively enacted at the existing liability are substantially modified, such an exchange or Leases sufficiently advanced that it is probable that the specified balance sheet date. modification is treated as a derecognition of the original liability The determination of whether an arrangement is, or contains a performance standards will be met or exceeded and the amount of and the recognition of a new liability such that the difference lease is based on the substance of the arrangement at inception the incentive payments can be measured reliably. Claims are only Current and deferred income tax is charged or credited directly

in the respective carrying amounts together with any costs or date of whether the fulfilment of the arrangement is dependent on included in revenue when negotiations have reached an advanced to other comprehensive income or equity if it relates to items that Financial statements fees incurred are recognised in the income statement. the use of a specific asset or assets or the arrangement conveys stage such that it is probable the claim will be accepted and can are credited or charged to respectively, other comprehensive the right to use the asset. be measured reliably. income or equity. Otherwise, income tax is recognised in the Pensions and other long-term employment benefits income statement. The group has various defined contribution pension schemes in The group has entered into various operating leases the payments Oil & gas activities (Energy Developments) accordance with the local conditions and practices in the countries for which are recognised as an expense in the income statement Oil & gas revenues comprise the group’s share of sales from the Derivative financial instruments and hedging in which it operates. The amount charged to the income statement on a straight-line basis over the lease terms. processing or sale of hydrocarbons on an entitlement basis, when The group uses derivative financial instruments such as forward in respect of pension costs reflects the contributions payable in the the significant risks and rewards of ownership have been passed currency contracts, interest rate collars and swaps and oil price year. Differences between contributions payable during the year Revenue recognition to the buyer. collars and forward contracts to hedge its risks associated with and contributions actually paid are shown as either accrued Revenue is recognised to the extent that it is probable economic foreign currency, interest rate and oil price fluctuations. Such liabilities or prepaid assets in the balance sheet. benefits will flow to the group and the revenue can be reliably Pre-contract/bid costs derivative financial instruments are initially recognised at fair value measured. The following specific recognition criteria also apply: Pre-contract/bid costs incurred are recognised as an expense on the date on which a derivative contract is entered into and are The group’s other long-term employment benefits are provided until there is a high probability that the contract will be awarded, subsequently remeasured at fair value. Derivatives are carried as in accordance with the labour laws of the countries in which the Engineering, procurement and construction services after which all further costs are recognised as assets and assets when the fair value is positive and as liabilities when the group operates, further details of which are given in note 25. (Engineering & Construction) expensed out over the life of the contract. fair value is negative. Revenues from fixed-price lump-sum contracts are recognised on Share-based payment transactions the percentage-of-completion method, based on surveys of work Income taxes Any gains or losses arising from changes in the fair value of Employees (including Directors) of the group receive remuneration performed once the outcome of a contract can be estimated Income tax expense represents the sum of current income tax derivatives that do not qualify for hedge accounting are taken in the form of share-based payment transactions, whereby reliably. In the early stages of contract completion, when the and deferred tax. to the income statement. employees render services in exchange for shares or rights over outcome of a contract cannot be estimated reliably, contract shares (‘equity-settled transactions’). revenues are recognised only to the extent of costs incurred Current income tax assets and liabilities for the current and prior The fair value of forward currency contracts is calculated by that are expected to be recoverable. periods are measured at the amount expected to be recovered reference to current forward exchange rates for contracts with Equity-settled transactions from, or paid to the taxation authorities. Taxable profit differs from similar maturity profiles. The fair value of interest rate cap, swap The cost of equity-settled transactions with employees is Revenues from cost-plus-fee contracts are recognised on the profit as reported in the income statement because it excludes and oil price collar contracts is determined by reference to measured by reference to the fair value at the date on which they basis of costs incurred during the year plus the fee earned items of income or expense that are taxable or deductible in market values for similar instruments. are granted. In valuing equity-settled transactions, no account is measured by the cost-to-cost method. other years and it further excludes items that are never taxable or taken of any service or performance conditions, other than deductible. The group’s liability for current tax is calculated using conditions linked to the price of the shares of Petrofac Limited tax rates that have been enacted or substantively enacted by the (‘market conditions’), if applicable. balance sheet date. 100 101 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

2 Summary of significant accounting policies continued Cash flow hedges 3 Segment information Derivative financial instruments and hedging continued For cash flow hedges, the effective portion of the gain or loss on As described on page 41, with effect from 1 January 2009, the group reorganised to deliver its services through seven business units: For the purposes of hedge accounting, hedges are classified as: the hedging instrument is recognised directly in equity, while the Engineering & Construction, Engineering & Construction Ventures, Offshore Engineering & Operations, Engineering Services, Training ■ fair value hedges when hedging the exposure to changes in the ineffective portion is recognised in the income statement. Amounts Services, Production Solutions and Energy Developments. As a result the segment information has been realigned to fit the new group fair value of a recognised asset or liability or taken to equity are transferred to the income statement when the organisational structure which now comprises four reporting segments being Engineering & Construction, Offshore Engineering & Operations, ■ cash flow hedges when hedging exposure to variability in cash hedged transaction affects the income statement. Engineering, Training Services and Production Solutions, and Energy Developments, rather than as was historically the case, split between flows that is either attributable to a particular risk associated three reporting divisions Engineering & Construction, Operations Services and Energy Developments. with a recognised asset or liability or a highly probable If the hedging instrument expires or is sold, terminated or exercised forecast transaction without replacement or rollover, or if its designation as a hedge is The following tables represent revenue and profit information relating to the group’s reporting segments for the year ended 31 December 2009 revoked, any cumulative gain or loss existing in equity at that time and the comparative segmental information has been restated to reflect the revised group structure. The group formally designates and documents the relationship remains in equity and is recognised when the forecast transaction between the hedging instrument and the hedged item at the is ultimately recognised in the income statement. When a forecast Included within the Engineering, Training Services and Production Solutions segment are three diverse businesses none of which have ever inception of the transaction, as well as its risk management transaction is no longer expected to occur, the cumulative gain or met the quantitative thresholds set by IFRS 8 ‘Operating Segments’ for determining reportable segments. objectives and strategy for undertaking various hedge transactions. loss that was reported in equity is immediately transferred to the The documentation also includes identification of the hedging income statement. The consolidation adjustments and corporate columns include certain balances which due to their nature are not allocated to segments. instrument, the hedged item or transaction, the nature of risk being hedged and how the group will assess the hedging instrument’s Embedded derivatives Year ended 31 December 2009 effectiveness in offsetting the exposure to changes in the hedged Contracts are assessed for the existence of embedded derivatives Engineering, item’s fair value or cash flows attributable to the hedged risk. The at the date that the group first becomes party to the contract, Offshore Training Services Consolidation Engineering & Engineering & & Production Energy Corporate adjustments & group also documents its assessment, both at hedge inception with reassessment only if there is a change to the contract that Construction Operations Solutions Developments & others eliminations Total and on an ongoing basis, of whether the derivatives that are used significantly modifies the cash flows. Embedded derivatives US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 in the hedging transactions are highly effective in offsetting which are not clearly and closely related to the underlying asset, Revenue changes in fair values or cash flows of the hedged items. liability or transaction are separated and accounted for as stand- External sales 2,508,951 616,542 281,225 248,708 – – 3,655,426 alone derivatives. Inter-segment sales – 10,178 68,431 – – (78,609) – The treatment of gains and losses arising from revaluing derivatives designated as hedging instruments depends on the nature of the Total revenue 2,508,951 626,720 349,656 248,708 – (78,609) 3,655,426 hedging relationship, as follows: Segment results 321,600 17,830 34,483 77,395 (1,615) (326) 449,367 Fair value hedges Unallocated corporate costs – – – – (8,181) – (8,181) For fair value hedges, the carrying amount of the hedged item is Profit/(loss) before tax and adjusted for gains and losses attributable to the risk being hedged; finance income/(costs) 321,600 17,830 34,483 77,395 (9,796) (326) 441,186 the derivative is remeasured at fair value and gains and losses from Finance costs – (258) (1,582) (10,702) (5,705) 12,665 (5,582) both are taken to the income statement. For hedged items carried at amortised cost, the adjustment is amortised through the income Finance income 14,087 94 313 64 10,049 (12,665) 11,942 statement such that it is fully amortised by maturity. Profit/(loss) before income tax 335,687 17,666 33,214 66,757 (5,452) (326) 447,546

Income tax (expense)/income (61,328) (4,853) (672) (20,566) 3,095 (191) (84,515) Financial statements The group discontinues fair value hedge accounting if the hedging Minority interests (9,240) – (188) – – – (9,428) instrument expires or is sold, terminated or exercised, the hedge Profit/(loss) for the year attributable no longer meets the criteria for hedge accounting or the group to Petrofac Limited shareholders 265,119 12,813 32,354 46,191 (2,357) (517) 353,603 revokes the designation. Year ended 31 December 2008 Engineering, Offshore Training Services Consolidation Engineering & Engineering & & Production Energy Corporate adjustments & Construction Operations Solutions Developments & others eliminations Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue External sales 1,968,522 767,795 439,862 153,357 – – 3,329,536 Inter-segment sales 25,017 8,769 70,542 – – (104,328) – Total revenue 1,993,539 776,564 510,404 153,357 – (104,328) 3,329,536

Segment results 241,160 23,172 48,258 51,713 (1,176) (215) 362,912 Unallocated corporate costs – – – – (7,326) – (7,326) Profit/(loss) before tax and finance income/(costs) 241,160 23,172 48,258 51,713 (8,502) (215) 355,586 Finance costs – (914) (3,656) (8,247) (7,547) 6,458 (13,906) Finance income 19,395 32 998 224 8,075 (12,036) 16,688 Profit/(loss) before income tax 260,555 22,290 45,600 43,690 (7,974) (5,793) 358,368 Income tax (expense)/income (54,206) (5,847) (12,507) (21,810) (571) 1,562 (93,379) Profit/(loss) for the year attributable to Petrofac Limited shareholders 206,349 16,443 33,093 21,880 (8,545) (4,231) 264,989 102 103 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

3 Segment information continued Geographical segments Year ended 31 December 2009 The following tables present revenue from external customers based on project location and non-current assets by physical location for Engineering, the years ended 31 December 2009 and 2008. Offshore Training Services Consolidation Engineering & Engineering & & Production Energy Corporate adjustments & Construction Operations Solutions Developments & others eliminations Total Year ended 31 December 2009 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 United United Arab Other Kingdom Emirates Syria Algeria Oman Kuwait Kazakhstan countries Consolidated Assets US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Segment assets 2,719,786 249,026 266,642 751,959 626,119 (1,071,692) 3,541,840 Revenues from Inter-segment assets (451,816) (13,664) (42,974) (4,948) (558,290) 1,071,692 – external customers 705,281 695,118 530,269 492,378 380,601 203,577 184,305 463,897 3,655,426 Investments – – – 539 – – 539 2,267,970 235,362 223,668 747,550 67,829 – 3,542,379 United United Arab Other Kingdom Tunisia Emirates Algeria Malaysia countries Consolidated Unallocated assets – – – – 8,466 – 8,466 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Deferred tax assets 4,160 2,953 5,181 21,579 15,853 – 49,726 Non-current assets: Total assets 2,272,130 238,315 228,849 769,129 92,148 – 3,600,571 Property, plant and equipment 447,591 57,078 74,093 55,229 25,279 18,726 677,996 Intangible oil & gas assets – – – – 53,888 – 53,888 Other segment information Other intangible assets 11,654 – – – – 7,565 19,219 Capital expenditures: Goodwill 85,155 – 12,099 – – 668 97,922 Property, plant and equipment 51,821 3,400 6,682 309,824 4,686 (1,014) 375,399 Intangible oil & gas assets – – – 29,230 – – 29,230 Year ended 31 December 2008 United United Arab Other Charges: Kingdom Emirates Oman Tunisia Algeria Syria Kazakhstan countries Consolidated US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Depreciation 24,525 1,887 7,482 78,677 251 (918) 111,904 Revenues from Amortisation 415 – 668 – – – 1,083 external customers 790,083 553,393 494,818 277,676 224,122 215,077 201,762 572,605 3,329,536 Impairment – – – 4,793 – – 4,793 Other long-term employment benefits 7,779 833 1,736 52 38 – 10,438 United United Arab Other Kingdom Tunisia Emirates Algeria Malaysia countries Consolidated Share-based payments 6,213 1,263 2,258 1,337 2,192 – 13,263 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Non-current assets: Year ended 31 December 2008 Property, plant and equipment 180,457 68,904 68,365 59,009 25,212 11,117 413,064 Engineering, Offshore Training Services Consolidation Intangible oil & gas assets 29,451 – – – – – 29,451 Engineering & Engineering & & Production Energy Corporate adjustments & Other intangible assets 8,902 – – – – – 8,902 Construction Operations Solutions Developments & others eliminations Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Goodwill 80,418 – 16,448 – – 668 97,534

Assets Financial statements Segment assets 1,590,789 221,303 279,958 450,813 – (352,592) 2,190,271 Revenue from two customers amounted to US$801,723,000 (2008: US$822,114,000) in the Engineering & Construction segment. Inter-segment assets (292,321) (14,436) (45,441) (394) – 352,592 – 4 Revenues and expenses Investments – – – 566 – – 566 a. Revenue 1,298,468 206,867 234,517 450,985 – – 2,190,837 2009 2008 Unallocated assets – – – – 32,540 – 32,540 US$’000 US$’000 Deferred tax assets 3,136 1,565 4,100 37,162 919 (438) 46,444 Rendering of services 3,446,037 3,214,782 Total assets 1,301,604 208,432 238,617 488,147 33,459 (438) 2,269,821 Sale of crude oil & gas 202,770 102,036 Sale of processed hydrocarbons 6,619 12,718 Other segment information 3,655,426 3,329,536 Capital expenditures: Property, plant and equipment 49,906 4,221 10,005 197,718 325 (6,633) 255,542 Included in revenues from rendering of services are Offshore Engineering & Operations, Engineering, Training Services and Production Intangible oil & gas assets – – – 37,036 – – 37,036 Solutions revenues of a ‘pass-through’ nature with zero or low margins amounting to US$230,262,000 (2008: US$275,947,000). Other intangible assets – – 12,009 – – – 12,009 b. Cost of sales Goodwill – – 52,353 – – – 52,353 Included in cost of sales for the year ended 31 December 2009 is US$908,000 (2008: US$88,000 loss) gain on disposal of property, plant and equipment used to undertake various engineering and construction contracts. In addition depreciation charged on property, Charges: plant and equipment of US$104,997,000 during 2009 (2008: US$39,143,000) is included in cost of sales (note 9). Depreciation 11,210 1,504 10,803 22,254 425 (840) 45,356 Amortisation – – 2,829 – – – 2,829 Also included in cost of sales are forward points and ineffective portions on derivatives designated as cash flow hedges and gains Impairment – – – 5,355 – – 5,355 on maturity of undesignated derivatives of US$19,508,000 (2008: US$11,826,000 losses). These amounts are an economic hedge but Write-off of intangible oil & gas assets – – – 9,826 – – 9,826 do not meet the criteria within IAS 39 and are most appropriately recorded in cost of sales. Other long-term employment benefits 7,867 816 1,427 60 53 – 10,223 Share-based payments 3,855 1,485 1,679 1,059 1,370 – 9,448 104 105 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

4 Revenues and expenses continued 5 Finance (costs)/income c. Other income 2009 2008 2009 2008 US$’000 US$’000 US$’000 US$’000 Interest payable: Foreign exchange gains 2,342 6,134 Long-term borrowings (3,171) (2,888) Gain on sale of property, plant and equipment – 47 Other interest, including short-term loans and overdrafts (310) (1,239) Other income 1,733 1,240 Unwinding of discount on deferred consideration and decommissioning provisions (2,101) (1,910) 4,075 7,421 Ineffective foreign currency cash flow hedge – (8,157) Time value portion of derivatives designated as hedges (note 31) – 288 d. Other expenses Total finance cost (5,582) (13,906) 2009 2008 US$’000 US$’000 Foreign exchange losses 2,675 1,932 Interest receivable: Bank interest receivable 11,487 15,989 Loss on sale of property, plant and equipment 124 47 Other interest receivable 455 699 Other expenses 199 564 Total finance income 11,942 16,688 2,998 2,543 6 Income tax e. Selling, general and administration expenses a. Tax on ordinary activities 2009 2008 US$’000 US$’000 The major components of income tax expense are as follows: 2009 2008 Staff costs 94,583 99,441 US$’000 US$’000 Depreciation 6,907 6,213 Current income tax Amortisation (note 12) 1,083 2,829 Current income tax charge 100,985 128,243 Impairment (note 12 and 14) 4,793 5,355 Adjustments in respect of current income tax of previous years (31,448) 4,373 Write-off of intangible oil & gas assets (note 12) – 9,826 Deferred income tax Other operating expenses 72,831 78,503 Relating to origination and reversal of temporary differences 5,570 (33,393) 180,197 202,167 Adjustments in respect of deferred income tax of previous years 9,408 (5,844) Income tax expense reported in the income statement 84,515 93,379 Other operating expenses consist mainly of office, travel, legal and professional and contracting staff costs. b. Reconciliation of total tax charge f. Staff costs A reconciliation between the income tax expense and the product of accounting profit multiplied by the Company’s domestic tax rate 2009 2008 is as follows: US$’000 US$’000 2009 2008

Total staff costs: US$’000 US$’000 Financial statements Wages and salaries 708,684 682,869 Accounting profit before tax 447,546 358,368 Social security costs 27,877 28,892 At Jersey’s domestic income tax rate of 0% (2008: 20%) – 71,674 Defined contribution pension costs 11,155 11,948 Profits exempt from Jersey income tax – (71,674) Other long-term employee benefit costs (note 25) 10,438 10,223 Expected tax charge using the weighted average statutory tax rate for the group 107,320 92,922 Expense of share-based payments (note 22) 13,263 9,448 Overhead allowances – (4,484) 771,417 743,380 Expenditure not allowable for income tax purposes 14,706 6,192 Income not taxable (396) (415) Of the US$771,417,000 of staff costs shown above, US$676,834,000 (2008: US$643,939,000) are included in cost of sales, with the Adjustments in respect of previous years (22,040) (1,470) remainder in selling, general and administration expenses. Tax effect of utilisation of tax losses not previously recognised (252) (312) US$25,598,000 of prior year Engineering & Construction contract-related staff costs have been reclassified from selling, general and Unrecognised tax losses 618 946 administrative expenses to cost of sales to be consistent with the current year ended 31 December 2009 accounting treatment of Other permanent differences (15,441) – these costs. At the effective income tax rate of 18.9% (2008: 26.1%) 84,515 93,379

The average number of persons employed by the group during the year was 11,628 (2008: 10,383). The group’s effective tax rate for the year ended 31 December 2009 is 18.9% (2008: 26.1%). There are a number of factors contributing to the decrease in the group effective tax rate. These include confirmation during the year of the applicability of a lower tax rate in relation g. Auditors’ remuneration to the group’s projects in Oman. The lower rate applies to the profits earned in earlier years; the effect has been recognised as an The group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services provided to adjustment in respect of prior years in the tax reconciliation. Also a higher proportion of Engineering & Construction segmental profits the group: have been earned in lower tax rate jurisdictions. The Energy Developments business unit has claimed the tax allowances available to 2009 2008 it during 2009 and in particular Ring Fence Expenditure Supplement which is available for a limited number of accounting periods for US$’000 US$’000 company’s carrying on a ring fence trade within the UK Continental Shelf. Audit of the group financial statements 1,369 1,177 Other fees to auditors: For the year ended 31 December 2008 the Company obtained Jersey exempt company status and was therefore exempt from Jersey Auditing the accounts of subsidiaries 546 236 income tax on non-Jersey source income and bank interest (by concession). From 1 January 2009 the Jersey exempt company status Other services relating to taxation 178 107 regime has been abolished and under the new regime the Company will be charged to tax in Jersey at the rate of 0%. No material impact All other services 15 46 to the income tax expense is expected to arise as a result of this change. 2,108 1,566 106 107 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

6 Income tax continued 8 Dividends paid and proposed c. Deferred income tax 2009 2008 Deferred income tax relates to the following: US$’000 US$’000 Consolidated balance sheet Consolidated income statement Declared and paid during the year 2009 2008 2009 2008 Equity dividends on ordinary shares: US$’000 US$’000 US$’000 US$’000 Final dividend for 2007: 11.50 cents per share – 39,164 Deferred income tax liabilities Interim dividend 2008: 7.50 cents per share – 25,536 Fair value adjustment on acquisitions 2,599 3,610 (139) (800) Final dividend for 2008: 17.90 cents per share 60,332 – Accelerated depreciation 27,515 23,065 15,472 19,778 Interim dividend 2009: 10.70 cents per share 36,197 – Other temporary differences 12,078 11,521 (1,441) (18,094) 96,529 64,700 Gross deferred income tax liabilities 42,192 38,196 2009 2008 Deferred income tax assets US$’000 US$’000 Losses available for offset 18,413 33,165 (11,130) (28,747) Proposed for approval at AGM Decelerated depreciation for tax purposes 7,596 5,893 9,409 (3,932) (not recognised as a liability as at 31 December) Equity dividends on ordinary shares: Share scheme 18,636 2,799 (1,142) (3,024) Final dividend for 2009: 25.10 cents per share (2008: 17.90 cents per share) 86,729 61,831 Other temporary differences 5,081 4,587 3,949 (4,418) Gross deferred income tax assets 49,726 46,444 9 Property, plant and equipment Deferred income tax charge/(credit) 14,978 (39,237) Land, Office buildings and furniture Assets Oil & gas Oil & gas leasehold Plant and and under d. Unrecognised tax losses assets facilities improvements equipment Vehicles equipment construction Total Deferred income tax assets are recognised for tax loss carry-forwards and tax credits to the extent that the realisation of the related US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 tax benefit through the future taxable profits is probable. The group did not recognise deferred income tax assets of US$15,452,000 Cost (2008: US$20,732,000). At 1 January 2008 135,515 125,371 21,247 22,556 4,443 53,420 31,064 393,616 2009 2008 US$’000 US$’000 Additions 189,214 – 35,018 2,935 2,516 25,859 – 255,542 Expiration dates for tax losses Acquisition of subsidiaries – – 190 – – 534 – 724 No earlier than 2022 11,451 11,906 Transfer from capital work No expiration date 3,360 6,534 in progress – – 31,064 – – – (31,064) – 14,811 18,440 Disposals – – (723) (683) (318) (875) – (2,599) Tax credits (no expiration date) 641 2,292 Exchange difference (45,626) – (3,708) (2,573) (67) (9,891) – (61,865) 15,452 20,732 At 1 January 2009 279,103 125,371 83,088 22,235 6,574 69,047 – 585,418 Additions 276,798 32,612 32,632 4,273 4,907 17,663 6,514 375,399 Financial statements 7 Earnings per share Disposals – – (1,474) (4,631) (789) (3,366) – (10,260) Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary shareholders by the Exchange difference – – 1,296 1,103 204 3,745 165 6,513 weighted average number of ordinary shares outstanding during the year. At 31 December 2009 555,901 157,983 115,542 22,980 10,896 87,089 6,679 957,070

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders, after adjusting for any Depreciation dilutive effect, by the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of ordinary shares At 1 January 2008 (8,874) (73,660) (4,060) (15,049) (3,467) (32,269) – (137,379) granted under the employee share award schemes which are held in trust. Charge for the year (7,748) (13,366) (5,346) (2,598) (1,052) (15,246) – (45,356) The following reflects the income and share data used in calculating basic and diluted earnings per share: Disposals – – 544 20 237 726 – 1,527 2009 2008 Exchange difference 435 – 879 1,115 47 6,378 – 8,854 US$’000 US$’000 At 1 January 2009 (16,187) (87,026) (7,983) (16,512) (4,235) (40,411) – (172,354) Net profit attributable to ordinary shareholders for basic and diluted earnings per share 353,603 264,989 Charge for the year (60,984) (15,254) (14,998) (3,571) (2,254) (14,843) – (111,904) 2009 2008 Disposals – – 1,330 4,516 740 3,150 – 9,736 Number Number Exchange difference – – (379) (1,051) (37) (3,085) – (4,552) ’000 ’000 At 31 December 2009 (77,171) (102,280) (22,030) (16,618) (5,786) (55,189) – (279,074) Weighted average number of ordinary shares for basic earnings per share 337,473 339,585 Net carrying amount: At 31 December 2009 478,730 55,703 93,512 6,362 5,110 31,900 6,679 677,996 Effect of diluted potential ordinary shares granted under share-based payment schemes 5,187 4,072 At 31 December 2008 262,916 38,345 75,105 5,723 2,339 28,636 – 413,064 Adjusted weighted average number of ordinary shares for diluted earnings per share 342,660 343,657 No interest has been capitalised within oil & gas facilities during the year (2008: US$ nil) and the accumulated capitalised interest, net of depreciation at 31 December 2009, was US$931,000 (2008: US$1,430,000).

Additions to oil & gas assets in the year mainly comprise development expenses capitalised on the group’s interest in the Don area assets of US$274,114,000 (2008: US$167,265,000). 108 109 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

9 Property, plant and equipment continued 11 Goodwill Included in oil & gas assets are US$50,726,000 (2008: US$2,879,000) of capitalised decommissioning costs net of depreciation provided A summary of the movements in goodwill is presented below: on the PM304 asset in Malaysia, the Chergui asset in Tunisia and the Don area assets in the United Kingdom. 2009 2008 US$’000 US$’000 Of the total charge for depreciation in the income statement, US$104,997,000 (2008: US$39,143,000) is included in cost of sales and At 1 January 97,534 71,743 US$6,907,000 (2008: US$6,213,000) in selling, general and administration expenses. Acquisitions during the year (note 10) – 52,353 Reassessment of deferred consideration payable (note 10 and 26) (8,992) – Capital work in progress comprises of expenditures incurred in relation to the group ERP project. Exchange difference 9,380 (26,562) 10 Business combinations At 31 December 97,922 97,534 Acquisitions in 2008 Eclipse Petroleum Technology Limited The decrease in goodwill is as a result of the reassessment of deferred consideration payable on SPD Group Limited of US$4,351,000, On 25 July 2008, the group acquired a 100% interest in the share capital of Eclipse Petroleum Technology Limited (Eclipse), a specialist Eclipse Petroleum Technology Limited of US$1,712,000 and Caltec Limited of US$2,929,000. production engineering company. The consideration for the acquisition inclusive of transaction costs of Sterling 195,000 (equivalent US$388,000), was Sterling 8,150,000 (equivalent US$16,200,000). The consideration of Sterling 7,955,000 (equivalent US$15,812,000), Goodwill acquired through business combinations has been allocated to four groups of cash-generating units, which are operating excluding transaction costs, comprised Sterling 6,000,000 (equivalent US$11,927,000) in cash, Sterling 1,000,000 (equivalent segments, for impairment testing as follows: US$1,988,000) to be satisfied with 158,177 ordinary shares vesting in two years’ time and the balance being the discounted value of ■ Offshore Engineering & Operations deferred consideration amounting to Sterling 955,000 (equivalent US$1,897,000) payable based on the estimated future profitability ■ Production Solutions of Eclipse. The deferred consideration in no event will exceed an additional amount of Sterling 9,000,000 (equivalent US$17,892,000). ■ Training Services ■ Energy Developments The fair value of net assets acquired was US$3,960,000, which included fair value of intangible assets recognised on acquisition of US$2,179,000. These intangible assets recognised on acquisition comprise a proprietary software system which is being amortised These represent the lowest level within the group at which the goodwill is monitored for internal management purposes. over its remaining economic useful life of six years on a straight-line basis. Offshore Engineering & Operations, Production Solutions and Training Services cash-generating units During the year, income of US$152,000 (2008: US$275,000 charge) for the unwinding of interest has been reflected in the income The recoverable amounts for the Offshore Engineering & Operations, Production Solutions and Training units have been determined statement reflecting the catch-up impact of the change in the estimated deferred consideration payable during 2009. based on value in use calculations, using discounted pre-tax cash flow projections. Management has adopted a ten-year projection period to assess each unit’s value in use as it is confident based on past experience of the accuracy of long-term cash flow forecasts that these The deferred consideration was re-assessed at year end in the light of latest financial projections for the business and the current carried projections are reliable. The cash flow projections are based on financial budgets approved by senior management covering a five-year amount was reduced by Sterling 1,025,000 (equivalent US$1,712,000) with a corresponding decrease in the carried goodwill. period, extrapolated for a further five years at a growth rate of 5% for Offshore Engineering & Operations and Training cash-generating units and 2.5% per annum for Production Solutions cash-generating unit since it includes newly acquired businesses (note 10) where The residual goodwill of Sterling 5,133,000 (equivalent US$8,327,000) (2008: Sterling 6,158,000, equivalent US$8,995,000) comprises there is less historic track record of achieving financial projections. Management considers these long-term growth rates to be conservative the fair value of expected future synergies and business opportunities arising from the integration of the business in to the group. relative to both the economic outlook for the units in their respective markets within the oil & gas industry and the growth rates experienced in the recent past by each unit. Caltec Limited On 29 August 2008, the group acquired a 100% interest in the share capital of Caltec Limited (Caltec), a specialist production technology Energy Developments cash-generating unit The recoverable amount of the Energy Developments unit is also determined on a value in use calculation using discounted pre-tax cash company, for a consideration of Sterling 26,776,000 (equivalent US$48,956,000), including transaction costs of Sterling 596,000 Financial statements (equivalent US$1,093,000). The consideration of Sterling 26,180,000 (equivalent US$47,863,000), excluding transaction costs, comprised flow projections based on financial budgets and economic assumptions for the unit approved by senior management and covering a five- of Sterling 15,699,000 (equivalent US$28,641,000) in cash as initial consideration and working capital adjustments and the balance year period, as referred to in IAS 36. being the discounted value of deferred consideration of Sterling 10,481,000 (equivalent US$19,222,000) payable based on the expected achievement of future performance targets set for the company. The deferred consideration in no event will exceed an additional amount Carrying amount of goodwill allocated to each group of cash-generating units of Sterling 15,000,000 (equivalent US$27,510,000). 2009 2008 US$’000 US$’000 The fair value of net assets acquired was US$8,843,000, which included fair value of intangible assets recognised on acquisition of Offshore Engineering & Operations unit 22,975 20,433 US$9,830,000. These intangible assets recognised on acquisition represent patented technology which is being amortised over its Production Solutions unit 52,496 56,653 remaining economic useful life of ten years on a straight-line basis. Training unit 20,234 18,231 Energy Developments unit 2,217 2,217 During the year, a charge of US$752,000 (2008: US$248,000) for the unwinding of interest has been reflected in the income statement. 97,922 97,534 During the year, 97,530 (Sterling 1,000,000 equivalent US$1,614,000) Petrofac shares were issued in settlement of additional deferred consideration payable on the original acquisition. Key assumptions used in value in use calculations The calculation of value in use for the Offshore Engineering & Operations, Production Solutions and Training Services units is most The deferred consideration was re-assessed at year end in the light of latest financial projections for the business and the current carried sensitive to the following assumptions: amount was reduced by Sterling 1,754,000 (equivalent US$2,929,000) with a corresponding decrease in the carried goodwill. Market share: the assumption relating to market share for the Offshore Engineering & Operations unit is based on the unit re-securing The residual goodwill of Sterling 20,072,000 (equivalent US$32,563,000) (2008: Sterling 21,826,000, equivalent US$31,881,000) comprises those existing customer contracts in the UK which are due to expire during the projection period; for the Training Services unit, the key the fair value of expected future synergies and business opportunities arising from the integration of the business in to the group. assumptions relate to management’s assessment of maintaining the unit’s market share in the UK and developing further the business in international markets.

Growth rate: estimates are based on management’s assessment of market share having regard to macro-economic factors and the growth rates experienced in the recent past by each unit. A growth rate of 5% per annum has been applied for Offshore Engineering & Operations and Training cash-generating units for the remaining five years of the ten-year projection period and 2.5% per annum for Production Solutions cash-generating unit since it includes newly acquired businesses (note 10) where there is less historic track record of achieving financial projections.

Net profit margins: estimates are based on management’s assumption of achieving a level of performance at least in line with the recent past performance of each of the units. 110 111 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

11 Goodwill continued Intangible oil & gas assets Key assumptions used in value in use calculations continued Oil & gas asset (part of the Energy Development segment) additions above comprise of US$29,230,000 (2008: US$24,658,000) of Discount rate: management has used a pre-tax discount rate of 14.5% per annum for Offshore Engineering & Operations (2008: 16.1%), capitalised expenditure on near-field appraisal wells in the group’s 30% interest in Block PM304, offshore Malaysia. Production Solutions (2008: 16.1%) and Training Services (2008: 15.1%) cash-generating units which are derived from the estimated weighted average cost of capital of the group. This discount rate has been calculated using an estimated risk-free rate of return adjusted During the year a further impairment provision of US$4,793,000 (2008: US$5,000,000) was made against the group’s interest in for the group’s estimated equity market risk premium and the group’s cost of debt. Permit NT/P68 in Australia. The group’s interests in the project were transferred to a third party for US$ nil consideration.

The calculation of value in use for the Energy Developments unit is most sensitive to the following assumptions: There were investing cash outflows relating to capitalised intangible oil & gas assets of US$29,230,000 (2008: US$37,036,000) in the current period arising from pre-development activities. As at 31 December 2009 there were cash and deposits of US$ nil (2008: Discount rate: management has used an estimate of the pre-tax weighted average cost of capital of the group plus a risk premium to reflect US$495,000) and trade and other payables of US$ nil (2008: US$508,000) arising from pre-development activities in the current period. the particular risk characteristics of each individual investment. The discount rate used for 2009 was 10.5% for each asset (2008: 11.4%). Other intangible assets Oil & gas prices: management has used an oil price assumption of US$70 (2008: US$55) per barrel and a gas price of US$8.30 (2008: Additions to other intangible assets of US$10,375,000 comprise of US$7,980,000 paid on account of intellectual property rights to LNG US$6.40) per mcf for the impairment testing of its individual oil & gas investments. technology and capitalisation of further development costs of a proprietary well engineering software system of US$2,395,000. Other intangible assets comprising customer contracts, proprietory software, LNG intellectual property and patent technology are being Reserve volumes and production profiles: management has used its internally developed economic models of reserves and production amortised over their remaining estimated economic useful life of three, six, eight and ten years respectively on a straight-line basis and as a basis of calculating value in use. the related amortisation charges included in selling, general and administrative expenses (note 4e).

Sensitivity to changes in assumptions 13 Interest in joint ventures With regard to the assessment of value in use of the cash-generating units, management believes that no reasonably possible change in In the normal course of business, the group establishes jointly controlled entities and operations for the execution of certain of its any of the above key assumptions would cause the carrying value of the relevant unit to exceed its recoverable amount, after giving due operations and contracts. A list of these joint ventures is disclosed in note 33. The group’s share of assets, liabilities, revenues and consideration to the macro-economic outlook for the oil & gas industry and the commercial arrangements with customers underpinning expenses relating to jointly controlled entities and operations is as follows: the cash flow forecasts for each of the units. 2009 2008 US$’000 US$’000 12 Intangible assets Revenue 31,573 28,878 2009 2008 Cost of sales (28,293) (21,481) US$’000 US$’000 Gross profit 3,280 7,397 Intangible oil & gas assets Cost: Selling, general and administration expenses (16,374) (1,200) At 1 January 43,137 15,927 Other income, net 47 – Additions 29,230 37,036 Finance income, net 5 87 Asset written-off – (9,826) (Loss)/profit before income tax (13,042) 6,284 Disposal (18,479) – Income tax (268) (523) At 31 December 53,888 43,137 Net (loss)/profit (13,310) 5,761 Accumulated impairment: Financial statements At 1 January (13,686) (8,686) Current assets 61,677 38,295 Impairment (4,793) (5,000) Non-current assets 4,830 3,644 Disposal 18,479 – Total assets 66,507 41,939 At 31 December – (13,686) Net book value of intangible oil & gas assets at 31 December 53,888 29,451 Current liabilities 64,619 2,446 Non-current liabilities 3,686 – Other intangible assets Total liabilities 68,305 2,446 Cost: Net (liabilities)/assets (1,798) 39,493 At 1 January 13,892 3,930 Additions on acquisition (note 10) – 12,009 14 Available-for-sale financial assets Acquired intangible assets (note 10) – 414 2009 2008 US$’000 US$’000 Additions 10,375 – Shares – listed – 133 Exchange difference 1,209 (2,461) Units in a mutual fund 539 433 At 31 December 25,476 13,892 539 566 Accumulated amortisation: At 1 January (4,990) (2,161) Available-for-sale financial assets consist of units in a mutual fund and therefore have no fixed maturity date or coupon rate. Amortisation (1,083) (2,829) Exchange difference (184) – During the year, the listed shares were sold for US$95,000 realising a US$38,000 loss on disposal. In 2008 an impairment provision At 31 December (6,257) (4,990) of US$355,000 was made against the above listed shares held as an available-for-sale financial asset on the basis of a fall in the market Net book value of other intangible assets at 31 December 19,219 8,902 value of these shares was considered to be significant. Total intangible assets 73,107 38,353 112 113 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

15 Other financial assets 18 Trade and other receivables 2009 2008 2009 2008 US$’000 US$’000 US$’000 US$’000 Other financial assets – non-current Trade receivables 614,837 608,023 Fair value of derivative instruments (note 31) 9,655 7,227 Retentions receivable 8,772 2,241 Restricted cash 2,880 1,899 Advances 139,550 31,977 12,535 9,126 Prepayments and deposits 35,143 24,849 Other financial assets – current Other receivables 80,368 33,841 Fair value of derivative instruments (note 31) 22,306 5,631 878,670 700,931 Interest receivable 845 1,047 Restricted cash 7,431 2,736 Trade receivables are non-interest bearing and are generally on 30 to 60 days’ terms. Trade receivables are reported net of provision for Other 375 295 impairment. The movements in the provision for impairment against trade receivables totalling US$614,837,000 (2008: US$608,023,000) 30,957 9,709 are as follows: 2009 2008 Specific General Specific General Restricted cash comprises deposits with financial institutions securing various guarantees and performance bonds associated with impairment impairment Total impairment impairment Total the group’s trading activities and cash in escrow against reimbursed long-term employee benefits charged to a customer and for the US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 acquisition of a company (note 32). This cash will be released on the maturity of these guarantees and performance bonds and on At 1 January 3,698 1,296 4,994 4,086 1,216 5,302 the transfer/cessation of employment of the relevant employee for which the long-term benefit is held in escrow. Charge for the year 6,309 1,320 7,629 1,361 482 1,843 16 Inventories Amounts written off (343) (198) (541) – (333) (333) 2009 2008 Unused amounts reversed (4,798) (661) (5,459) (1,530) (15) (1,545) US$’000 US$’000 Exchange difference 9 (3) 6 (219) (54) (273) Crude oil 5,272 1,669 At 31 December 4,875 1,754 6,629 3,698 1,296 4,994 Processed hydrocarbons 31 805 Stores and spares 2,943 744 At 31 December, the analysis of trade receivables is as follows: Raw materials 1,552 859 9,798 4,077 Neither past due Number of days past due nor impaired < 30 days 31–60 days 61–90 days 91–120 days 121–360 days > 360 days Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Included in the income statement are costs of inventories expensed of US$37,306,000 (2008: US$22,404,000). Unimpaired 434,159 116,197 28,835 13,365 3,431 5,977 2,138 604,102 17 Work in progress and billings in excess of cost and estimated earnings Impaired – 3,177 2,148 386 2,510 6,220 2,923 17,364 2009 2008 434,159 119,374 30,983 13,751 5,941 12,197 5,061 621,466 US$’000 US$’000 Less: impairment provision – (585) (243) (332) (305) (3,421) (1,743) (6,629)

Cost and estimated earnings 3,918,368 3,782,100 Financial statements Net trade receivables 2009 434,159 118,789 30,740 13,419 5,636 8,776 3,318 614,837 Less: billings (3,584,670) (3,529,405)

Work in progress 333,698 252,695 Unimpaired 325,844 197,790 45,106 11,012 10,460 12,714 1,319 604,245

Billings 3,406,412 1,509,548 Impaired – 734 86 618 666 3,032 3,636 8,772 Less: cost and estimated earnings (2,945,268) (1,224,021) 325,844 198,524 45,192 11,630 11,126 15,746 4,955 613,017 Billings in excess of cost and estimated earnings 461,144 285,527 Less: impairment provision – (190) (85) (194) (249) (1,640) (2,636) (4,994) Net trade receivables 2008 325,844 198,334 45,107 11,436 10,877 14,106 2,319 608,023 Total cost and estimated earnings 6,863,636 5,006,121 The credit quality of trade receivables that are neither past due nor impaired is assessed by management with reference to externally Total billings 6,991,082 5,038,953 prepared customer credit reports and the historic payment track records of the counterparties. Advances represent payments made to certain of the group’s subcontractors for projects in progress, on which the related work had not been performed at the balance sheet date. The significant increase in advances during 2009 relates to some major new contract awards in the Engineering & Construction business.

Included in other receivables are US$46,697,000 (2008: nil) recoverable from venture partners on the Don assets being their share of accrued expenses.

All trade and other receivables are expected to be settled in cash.

Certain trade and other receivables will be settled in cash using currencies other than the reporting currency of the group, and will be largely paid in Sterling and Kuwaiti Dinars. 114 115 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

19 Cash and short-term deposits 22 Share-based payment plans 2009 2008 Performance Share Plan (PSP) US$’000 US$’000 Under the Performance Share Plan of the Company, share awards are granted to executive Directors and a restricted number of other Cash at bank and in hand 203,105 107,461 senior executives of the group. The shares cliff vest at the end of three years subject to continued employment and the achievement of Short-term deposits 1,214,258 586,954 certain pre-defined non-market and market based performance conditions. The non-market based condition governing the vesting of 50% Total cash and bank balances 1,417,363 694,415 of the total award is subject to achieving between 15% and 25% earning per share (EPS) growth targets over a three-year period. The fair values of the equity-settled award relating to the EPS part of the scheme are estimated based on the quoted closing market price per Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of Company share at the date of grant with an assumed vesting rate per annum built into the calculation (subsequently trued up at year end between one day and three months depending on the immediate cash requirements of the group, and earn interest at respective short-term based on the actual leaver rate during the period from award date to year end) over the three-year vesting period of the plan. The fair value deposit rates. The fair value of cash and bank balances is US$1,417,363,000 (2008: US$694,415,000). and assumed vesting rates of the EPS part of the scheme are shown below: Fair value Assumed per share vesting rate For the purposes of the cash flow statement, cash and cash equivalents comprise the following: 2009 awards 545p 100.0% 2009 2008 US$’000 US$’000 2008 awards 522p 91.3% Cash at bank and in hand 203,105 107,461 2007 awards 415p 94.9% Short-term deposits 1,214,258 586,954 2006 awards 353p 91.7% Bank overdrafts (note 24) (26,619) (45,256) 1,390,744 649,159 The remaining 50% market performance based part of these awards is dependent on the total shareholder return (TSR) of the group compared to an index composed of selected relevant companies. The fair value of the shares vesting under this portion of the award is 20 Share capital determined by an independent valuer using a Monte Carlo simulation model taking into account the terms and conditions of the plan rules The share capital of the Company as at 31 December was as follows: and using the following assumptions at the date of grant: 2009 2008 2009 2008 2007 2006 US$’000 US$’000 awards awards awards awards Authorised Expected share price volatility (based on median 750,000,000 ordinary shares of US$0.025 each (2008: 750,000,000 ordinary shares of US$0.025 each) 18,750 18,750 of comparator group’s three-year volatilities) 49.0% 32.0% 29.0% 28.0% Share price correlation with comparator group 36.0% 22.0% 17.0% 10.0% Issued and fully paid Risk-free interest rate 2.10% 3.79% 5.20% 4.60% 345,532,388 ordinary shares of US$0.025 each (2008: 345,434,858 ordinary shares of US$0.025 each) 8,638 8,636 Expected life of share award 3 years 3 years 3 years 3 years Fair value of TSR portion 456p 287p 245p 234p The movement in the number of issued and fully paid ordinary shares is as follows: Number Ordinary shares: The following shows the movement in the number of shares held under the PSP scheme outstanding but not exercisable: Ordinary shares of US$0.025 each at 1 January 2008 345,434,858 2009 2008 Movement during the year – Number Number Ordinary shares of US$0.025 each at 1 January 2009 345,434,858 Outstanding at 1 January 1,298,809 864,181 Financial statements Issued during the year as further deferred consideration payable for the acquisition of a subsidiary (note 10) 97,530 Granted during the year 576,780 456,240 Ordinary shares of US$0.025 each at 31 December 2009 345,532,388 Vested during the year (418,153) – Forfeited during the year (24,756) (21,612) The share capital comprises only one class of ordinary shares. The ordinary shares carry a voting right and the right to a dividend. Outstanding at 31 December 1,432,680 1,298,809

21 Treasury shares The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 576,780 in respect of 2009 awards (2008: nil), For the purpose of making awards under its employee share schemes, the Company acquires its own shares which are held by the 431,843 in respect of 2008 awards (2008: 451,178), 424,057 in respect of 2007 awards (2008: 436,603) and nil for 2006 (2008: 411,028). Petrofac Employee Benefit Trust. All these shares have been classified in the balance sheet as treasury shares within equity. The charge recognised in the current year amounted to US$2,727,000 (2008: US$2,258,000). The movements in total treasury shares are shown below: 2009 2008 Deferred Bonus Share Plan (DBSP) Number US$’000 Number US$’000 Executive Directors and selected employees were originally eligible to participate in this scheme although the Remuneration Committee At 1 January 9,540,306 69,333 4,052,024 29,842 decided during 2007 that executive Directors should no longer continue to participate. Participants may be invited to elect or in some Acquired during the year – – 5,854,194 42,500 cases, be required, to receive a proportion of any bonus in ordinary shares of the Company (‘Invested Awards’). Following such an award, the Company will generally grant the participant an additional award of a number of shares bearing a specified ratio to the number of his Vested during the year (2,329,341) (13,048) (365,912) (3,009) or her invested shares (‘Matching Shares’). At 31 December 7,210,965 56,285 9,540,306 69,333 The 2006 share awards vest on the third anniversary of the grant date provided that the participant did not leave the group’s employment, As at 31 December 2009 5,504,819 (2008: 5,504,819) of the above shares were held by Lehman Brothers in a client custody account subject to a limited number of exceptions. However, a change in the rules of the DBSP scheme was approved by shareholders at the which is now being managed by their appointed Administrator. The Company anticipates that the Administrators will release these assets Annual General Meeting of the Company on 11 May 2007 such that the 2007 share awards and for any awards made thereafter, the in the near future under a signed Claim Resolution Agreement approved by the creditors. invested and Matching Shares would, unless the Remuneration Committee of the Board of Directors determined otherwise, vest 33.33% on the first anniversary of the date of grant, a further 33.33% on the second anniversary of the date of grant and the final 33.34% of the Included in the above treasury shares are 274,938 (2008: 274,938) shares held in relation to the acquisition of SPD Group Limited in 2007. award on the third anniversary of the date of grant.

Shares vested during the year include dividend shares of 76,931 (2008: 3,096) with a cost of US$431,000 (2008: US$25,000). At the year end the values of the bonuses settled by shares cannot be determined until all employees have confirmed the voluntary portion of their bonus they wish to be settled by shares rather than cash and until the Remuneration Committee has approved the mandatory portion of the employee bonuses to be settled in shares. Once the voluntary and mandatory portions of the bonus to be settled in shares are determined, the final bonus liability to be settled in shares is transferred to the reserve for share-based payments. The costs relating to the Matching Shares are recognised over the relevant vesting period and the fair values of the equity-settled Matching Shares granted to employees are based on the quoted closing market price at the date of grant adjusted for the trued-up percentage vesting rate of the plan. The details of the fair values and assumed vesting rates of the DBSP scheme are below: 116 117 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

22 Share-based payment plans continued 23 Other reserves Deferred Bonus Share Plan (DBSP) continued Net unrealised Fair value Assumed gains/(losses) on Net unrealised per share vesting rate available-for- (losses)/ Foreign Reserve for sale financial gains on currency share-based 2009 awards 545p 98.2% assets derivatives translation payments Total 2008 awards 522p 92.9% US$’000 US$’000 US$’000 US$’000 US$’000 2007 awards 415p 90.7% Balance at 1 January 2008 (as restated)* 598 65,857 4,817 16,161 87,433 2006 awards 353p 85.5% Foreign currency translation – – (84,232) – (84,232) Net gains on maturity of cash flow hedges recycled in the year – (32,103) – – (32,103) The following shows the movement in the number of shares held under the DBSP scheme outstanding but not exercisable: Net changes in fair value of derivatives and financial assets designated as cash flow hedges – (25,907) – – (25,907) 2009 2008 Changes in fair value of available-for-sale financial assets (879) – – – (879) Number* Number* Outstanding at 1 January 3,755,383 2,558,711 Impairment of available-for-sale financial assets 355 – – – 355 Granted during the year 2,773,020 1,777,080 Share-based payments charge (note 22) – – – 9,448 9,448 Vested during the year (1,743,372) (385,700) Transfer during the year (note 22) – – – 9,602 9,602 Forfeited during the year (90,840) (194,708) Shares vested during the year (note 22) – – – (3,009) (3,009) Outstanding at 31 December 4,694,191 3,755,383 Balance at 1 January 2009 74 7,847 (79,415) 32,202 (39,292) Foreign currency translation – – 15,087 – 15,087 * Includes invested and matching shares. Net gains on maturity of cash flow hedges recycled in the year – (4,303) – – (4,303) The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 2,696,752 in respect of 2009 awards Net changes in fair value of derivatives and financial assets (2008: nil), 1,237,786 in respect of 2008 awards (2008: 1,688,558), 759,653 in respect of 2007 awards (2008: 1,084,602) and nil for designated as cash flow hedges – 25,029 – – 25,029 2006 awards (2008: 982,223). Share-based payments charge (note 22) – – – 13,263 13,263 Transfer during the year (note 22) – – – 10,942 10,942 The charge recognised in the 2009 income statement in relation to matching share awards amounted to US$8,064,000 (2008: US$5,665,000). Shares vested during the year (note 22) – – – (12,617) (12,617) Share Incentive Plan (SIP) Deferred tax on share based payments reserve – – – 13,085 13,085 All UK employees, including UK resident Directors, are eligible to participate in the scheme. Employees may invest up to Sterling 1,500 per Balance at 31 December 2009 74 28,573 (64,328) 56,875 21,194 tax year of gross salary (or, if lower, 10% of salary) to purchase ordinary shares in the Company. There is no holding period for these shares. * During 2008, the Company identified that in prior periods certain gains and losses on cash flow hedges had been reclassified to accrued contract expenses from other reserves (net unrealised (losses)/gains on derivatives) ahead of the contract costs to which they relate impacting the income statement. As a result US$36,966,000 Restricted Share Plan (RSP) was reclassified from accrued contract expenses to other reserves at 1 January 2008. Under the Restricted Share Plan scheme, employees are granted shares in the Company over a discretionary vesting period which may or may not be, at the direction of the Remuneration Committee of the Board of Directors, subject to the satisfaction of performance conditions. Nature and purpose of other reserves At present there are no performance conditions applying to this scheme nor is there currently any intention to introduce them in the future. Net unrealised gains/(losses) on available-for-sale financial assets The fair values of the awards granted under the plan at various grant dates during the year are based on the quoted market price at the date This reserve records fair value changes on available-for-sale financial assets held by the group net of deferred tax effects. Realised gains Financial statements of grant adjusted for an assumed vesting rate over the relevant vesting period. For details of the fair values and assumed vesting rate of the and losses on the sale of available-for-sale financial assets are recognised as other income or expenses in the income statement. RSP scheme, see below: Weighted average Assumed Net unrealised gains/(losses) on derivatives fair value per share vesting rate The portion of gains or losses on cash flow hedging instruments that are determined to be effective hedges are included within this 2009 awards 430p 100.0% reserve net of related deferred tax effects. When the hedged transaction occurs or is no longer forecast to occur the gain or loss is 2008 awards 478p 91.1% transferred out of equity to the income statement. Realised net gains amounting to US$5,161,000 (2008: US$31,713,000) relating to 2007 awards 456p 94.4% foreign currency forward contracts and financial assets designated as cash flow hedges have been recognised in cost of sales, realised net losses of US$1,470,000 (2008: US$63,000 gains) relating to interest rate derivatives have been classified as a net interest expense 2006 awards 278p 96.3% and a realised net gain of US$611,000 (2008: US$327,000) was added to revenues in respect of oil derivatives.

The following shows the movement in the number of shares held under the RSP scheme outstanding but not exercisable: The forward currency points element and ineffective portion of derivative financial instruments relating to forward currency contracts and gains on the maturity of un-designated derivatives amounting to a net gain of US$19,508,000 (2008: US$11,826,000 loss) have been 2009 2008 recognised in the cost of sales. The time value portion gain on interest rate derivatives of US$ nil (2008: US$433,000) and loss on oil Number Number derivatives of US$ nil (2008: US$145,000) were netted off and added to interest payable. Outstanding at 1 January 1,184,711 394,216 Granted during the year 86,432 811,399 Foreign currency translation reserve Vested during the year (167,053) (5,180) The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements in Forfeited during the year (21,629) (15,724) foreign subsidiaries. It is also used to record exchange differences arising on monetary items that form part of the group’s net investment Outstanding at 31 December 1,082,461 1,184,711 in subsidiaries. Reserve for share-based payments The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 86,432 in respect of 2009 awards (2008: nil), The reserve for share-based payments is used to record the value of equity-settled share-based payments awarded to employees and 786,826 in respect of 2008 awards (2008: 795,675), 209,203 in respect of 2007 awards (2008: 234,387) and nil for 2006 awards (2008: 154,649). transfers out of this reserve are made upon vesting of the original share awards.

During the year the Company recognised a charge of US$2,472,000 (2008: US$1,525,000) in relation to the above. The transfer during the year reflects the transfer from accrued expenses within trade and other payables of the bonus liability relating to the year ended 2008 of US$10,942,000 (2007 bonus of US$9,602,000) which has been voluntarily elected or mandatorily obliged The group has recognised a total charge of US$13,263,000 (2008: US$9,448,000) in the income statement during the year relating to the to be settled in shares during the year (note 22). above employee share-based schemes (see note 4f) which has been transferred to the reserve for share-based payments along with US$10,942,000 of the bonus liability accrued for the year ended 31 December 2008 which has been settled in shares granted during the year (2008: US$9,602,000).

For further details on the above employee share-based payment schemes refer to pages 80 to 82 of the Directors’ Remuneration Report. 118 119 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

24 Interest-bearing loans and borrowings 25 Provisions The group had the following interest-bearing loans and borrowings outstanding: Other long-term employment Provision for benefits provision decommissioning Total 31 December 2009 31 December 2008 Effective 2009 2008 US$’000 US$’000 US$’000 Actual interest rate % Actual interest rate % interest rate % Maturity US$’000 US$’000 Current At 1 January 2009 26,225 3,438 29,663 Revolving credit facility (i) US LIBOR – US LIBOR 2010 20,000 – Additions during the year 10,438 53,371 63,809 + 1.50% + 1.50% Unused amounts reversed/paid in the year (2,533) (278) (2,811) Bank overdrafts (ii) UK LIBOR UK LIBOR UK LIBOR on demand 26,619 45,256 Unwinding of discount – 1,442 1,442 + 2.00%, + 0.875%, + 2.00%, At 31 December 2009 34,130 57,973 92,103 US LIBOR US LIBOR US LIBOR + 2.00% + 0.875%, + 2.00%, Other long-term employment benefits provision KD Discount Rate KD Discount Rate Labour laws in certain countries in which the group operates require employers to provide for other long-term employment benefits. These + 2.00% + 2.00% benefits are payable to employees at the end of their period of employment. The provision for these long-term benefits is calculated based Other loans: on the employees’ last drawn salary at the balance sheet date and length of service, subject to the completion of a minimum service period Current portion of in accordance with the local labour laws of the jurisdictions in which the group operates. The amount is payable to the employees on being term loan (iii) US/UK LIBOR US/UK LIBOR 3.14% to 3.71% 10,489 9,156 transferred to another jurisdiction or on cessation of employment. + 0.875% + 0.875% (2008: 4.18% to 4.88%) Provision for decommissioning Current portion of The decommissioning provision primarily relates to the Company’s obligation for the removal of facilities and restoration of the site at the term loan (iv) US/UK LIBOR US/UK LIBOR 2.65% to 3.44% 963 – PM304 field in Malaysia, at Chergui in Tunisia and on the Don assets in the United Kingdom. The liability is discounted at the rate of 3.80% + 0.875% + 0.875% (2008: 3.74% on PM304 (2008: 3.50%), 5.25% on Chergui (2008: 5.25%) and 4.50% (2008: 3.40%) on Don. The unwinding of the discount is classified to 5.02%) as a finance cost (note 5). The Company estimates that the cash outflows against these provisions will arise in 2014 on PM304, in 2018 58,071 54,412 on Chergui and in 2019 on Don assuming no further development of the asset.

Non-current 26 Other financial liabilities 2009 2008 Term loan (iv) US/UK LIBOR US/UK LIBOR 2.65% to 3.44% 2013 18,291 18,720 US$’000 US$’000 + 0.875% + 0.875% (2008: 3.74% Other financial liabilities – non-current to 5.02%) Deferred consideration payable 27,438 32,147 Revolving credit facility (i) – US LIBOR (2008: 3.11%) 2010 – 20,000 Other 47 118 + 0.875% 27,485 32,265 Term loan (iii) US/UK LIBOR US/UK LIBOR 3.14% to 3.71% 2010-2013 46,694 54,847 + 0.875% + 0.875% (2008: 4.18% to 4.88%) Other financial liabilities – current Deferred consideration payable 1,622 – 64,985 93,567 Financial statements Interest payable 22 118 Less: Debt acquisition costs Fair value of derivative instruments (note 31) 1,813 6,244 net of accumulated Other 177 – amortisation and effective 3,634 6,362 rate adjustments (5,790) (5,379) 59,195 88,188 Included in deferred consideration payable above is an amount payable of US$4,890,000 (2008: US$ nil) relating to the group’s purchase of a floating platform. Details of the group’s interest-bearing loans and borrowings are as follows: 27 Trade and other payables (i) Revolving credit facility 2009 2008 US$’000 US$’000 This facility is repayable on 31 December 2010. Trade payables 266,944 275,058 (ii) Bank overdrafts Advances received from customers 379,684 76,845 Bank overdrafts are drawn down in US Dollars and Sterling denominations to meet the group’s working capital requirements. These are Accrued expenses 285,760 149,684 repayable on demand. Other taxes payable 14,699 6,876 Other payables 20,704 4,866 (iii) Term loan This term loan at 31 December 2009 comprised drawings of US$28,877,000 (2008: US$33,998,000) denominated in US Dollars and 967,791 513,329 US$28,306,000 (2008: US$30,005,000) denominated in Sterling. Both elements of the loan are repayable over a period of four years ending 30 September 2013. Trade payables are non-interest bearing and are normally settled on terms of between 30 and 60 days.

(iv) Term loan Advances from customers represent payments received for contracts on which the related work had not been performed at the balance This term loan is to be repaid over a period of three years ending 30 September 2013. The drawings at 31 December 2009 comprised sheet date. US$13,900,000 (2008: US$13,900,000) denominated in US Dollars and US$5,354,000 (2008: US$4,820,000) denominated in Sterling. Included in other payables are retentions held against subcontractors of US$938,000 (2008: US$911,000). The group’s credit facilities and debt agreements contain covenants relating to interest and net borrowings cover. None of the Company’s subsidiaries is subject to any material restrictions on their ability to transfer funds in the form of cash dividends, loans or advances to Certain trade and other payables will be settled in currencies other than the reporting currency of the group, mainly in Sterling, Euros the Company. and Kuwaiti Dinars. 120 121 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

28 Accrued contract expenses 30 Related party transactions 2009 2008 The consolidated financial statements include the financial statements of Petrofac Limited and the subsidiaries listed in note 33. US$’000 US$’000 Petrofac Limited is the ultimate parent entity of the group. Accrued contract expenses 832,503 543,191 Reserve for contract losses 4,153 8,670 The following table provides the total amount of transactions which have been entered into with related parties: 836,656 551,861 Sales to related Purchases from Amounts owed Amounts owed parties related parties by related parties to related parties The reserve for contract losses is to cover costs in excess of revenues on certain contracts. US$’000 US$’000 US$’000 US$’000 Joint ventures 2009 27,337 15,434 17,773 56,925 29 Commitments and contingencies 2008 9,081 1,858 2,907 367 Commitments In the normal course of business the group will obtain surety bonds, letters of credit and guarantees, which are contractually required to Key management personnel interests 2009 – 1,405 487 401 secure performance, advance payment or in lieu of retentions being withheld. Some of these facilities are secured by issue of corporate 2008 – 1,277 – 192 guarantees by the Company in favour of the issuing banks. All sales to and purchases from joint ventures are made at normal market prices and the pricing policies and terms of these transactions At 31 December 2009, the group had letters of credit of US$91,042,000 (2008: US$24,096,000) and outstanding letters of guarantee, are approved by the group’s management. including performance and bid bonds, of US$2,124,134,000 (2008: US$865,120,000) against which the group had pledged or restricted cash balances of, in aggregate, US$2,675,000 (2008: US$1,506,000). All related party balances will be settled in cash.

At 31 December 2009, the group had outstanding forward exchange contracts amounting to US$351,803,000 (2008: US$166,412,000). Purchases in respect of key management personnel interests of US$1,336,000 (2008: US$1,277,000) reflect the market rate based costs These commitments consist of future obligations to either acquire or sell designated amounts of foreign currency at agreed rates and of chartering the services of an aeroplane used for the transport of senior management and Directors of the group on company business, value dates (note 31). which is owned by an offshore trust of which the Chief Executive of the Company is a beneficiary.

Leases Also included in purchases in respect of key management personnel interests is US$69,000 (2008: US$ nil) relating to client entertainment The group has financial commitments in respect of non-cancellable operating leases for office space and equipment. These non- provided by a business owned by a member of the group’s key management. cancellable leases have remaining non-cancellable lease terms of between one and 17 years and, for certain property leases, are subject to renegotiation at various intervals as specified in the lease agreements. The future minimum rental commitments under these non- Amounts owed by key management personnel comprises a temporary loan of US$487,000 (2008: US$ nil) provided in respect of income tax cancellable leases are as follows: payable on vesting of Restricted Share Plan shares pending disposal of shares to meet this liability once the close period for trading 2009 2008 Petrofac shares ends. US$’000 US$’000 Within one year 35,796 59,292 Compensation of key management personnel After one year but not more than five years 57,127 72,729 The following details remuneration of key management personnel of the group comprising executive and Non-executive Directors of the More than five years 73,030 54,787 Company and other senior personnel. Further information relating to the individual Directors is provided in the Directors’ Remuneration 165,953 186,808 report on pages 76 to 86. 2009 2008

US$’000 US$’000 Financial statements Included in the above are commitments relating to the lease of an office building extension in Aberdeen, United Kingdom of US$39,735,000 Short-term employee benefits 11,209 5,542 (2008: US$44,573,000) and the lease of a drilling rig for the Don Southwest project of US$10,089,000 (2008: US$35,744,000). Other long-term employment benefits 129 59 Minimum lease payments recognised as an operating lease expense during the year amounted to US$33,063,000 (2008: US$26,557,000). Share-based payments 3,368 1,311 Fees paid to Non-executive directors 506 554 Capital commitments 15,212 7,466 At 31 December 2009, the group had capital commitments of US$18,786,000 (2008: US$44,035,000) excluding the above lease commitments. Increase in compensation of key management personnel in 2009 is mainly due to increase in the number of members of the executive management committee as a result of the management reorganisation of the group effective 1 January 2009. Included in the above are commitments relating to the further appraisal and development of wells as part of the Cendor project in Malaysia amounting to US$14,572,000 (2008: US$26,468,000), commitments in respect of IT projects of US$3,300,000 (2008: US$ nil) and the 31 Risk management and financial instruments development of the Don assets amounting to US$914,000 (2008: US$8,610,000). Risk management objectives and policies The group’s principal financial assets and liabilities, other than derivatives, comprise trade and other receivables, cash and short-term deposits, interest-bearing loans and borrowings, trade and other payables and deferred consideration.

The group’s activities expose it to various financial risks particularly associated with interest rate risk on its variable rate loans and borrowings and foreign currency risk on both conducting business in currencies other than reporting currency as well as translation of the assets and liabilities of foreign operations to the reporting currency. These risks are managed from time to time by using a combination of various derivative instruments, principally interest rate swaps, caps and forward currency contracts in line with the group’s hedging policy. The group has a policy not to enter into speculative trading of financial derivatives.

The Board of Directors of the Company has established an Audit Committee and Risk Committee to help identify, evaluate and manage the significant financial risks faced by the group and their activities are discussed in detail on pages 74 and 75.

The other main risks besides interest rate and foreign currency risk arising from the group’s financial instruments are credit risk, liquidity risk and commodity price risk and the policies relating to these risks are discussed in detail below: 122 123 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

31 Risk management and financial instruments continued Derivative instruments designated as cash flow hedges Interest rate risk At 31 December 2009, the group held no derivative instruments designated as cash flow hedges in relation to floating rate interest-bearing Interest rate risk arises from the possibility that changes in interest rates will affect the value of the group’s interest-bearing financial loans and borrowings: liabilities and assets. Fair value of asset/(liability) Nominal amount 2009 2008 The group’s exposure to market risk arising from changes in interest rates relates primarily to the group’s long-term variable rate debt Instrument (US$ equivalent) Date matured Date commenced US$’000 US$’000 obligations and its cash and bank balances. The group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. UK LIBOR interest rate swap 2,629,000 30 September 2009 31 December 2004 – (37) At 31 December 2009, after taking into account the effect of interest rate swaps and collars, 0.0% (2008: 65.1%) of the group’s term UK LIBOR interest rate collar 30,131,000 31 December 2009 31 December 2007 – (705) borrowings are at a fixed or capped rate of interest. The group’s cash and bank balances are at floating rates of interest. US LIBOR interest rate collar 34,138,000 31 December 2009 31 December 2007 – (432) Interest rate sensitivity analysis During 2009, changes in fair value of US$ nil (2008: US$1,607,000 loss) relating to these derivative instruments were taken to equity and The impact on the group’s pre-tax profit and equity due to a reasonably possible change in interest rates is demonstrated in the table a loss of US$1,470,000 (2008: US$63,000 gain) were recycled from equity into interest expense in the income statement. The time value below. The analysis assumes that all other variables remain constant. portion of these derivatives of US$ nil (2008: US$433,000 gain) was netted-off against interest expense. Pre-tax profit Equity 100 basis 100 basis 100 basis 100 basis point increase point decrease point increase point decrease Foreign currency risk US$’000 US$’000 US$’000 US$’000 The group is exposed to foreign currency risk on sales, purchases, and translation of assets and liabilities that are in a currency other than 31 December 2009 (1,096) 1,096 – – the functional currency of its operating units. The group is also exposed to the translation of the functional currencies of its units to the US 31 December 2008 (882) 882 (705) (1,615) Dollar reporting currency of the group. The following table summarises the percentage of foreign currency denominated revenues, costs, financial assets and financial liabilities, expressed in US Dollar terms, of the group totals. 2009 2008 The following table reflects the maturity profile of these financial liabilities and assets: % of foreign currency % of foreign currency denominated items denominated items Year ended 31 December 2009 Revenues 39.5% 43.8% Within 1–2 2–3 3–4 4–5 More than Costs 50.1% 61.6% 1 year years years years years 5 years Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Current financial assets 35.3% 57.9% Financial liabilities Non-current financial assets 1.0% 0.0% Floating rates Current financial liabilities 42.3% 64.8% Revolving credit facility (note 24) 20,000 – – – – – 20,000 Non-current financial liabilities 34.6% 25.6% Bank overdrafts (note 24) 26,619 – – – – – 26,619 Term loans (note 24) 11,452 18,901 24,221 21,863 – – 76,437 The group uses forward currency contracts to manage the currency exposure on transactions significant to its operations. It is the group’s 58,071 18,901 24,221 21,863 – – 123,056 policy not to enter into forward contracts until a highly probable forecast transaction is in place and to negotiate the terms of the derivative instruments used for hedging to match the terms of the hedged item to maximise hedge effectiveness. Financial assets Floating rates Foreign currency sensitivity analysis Cash and short-term deposits (note 19) 1,417,363 – – – – – 1,417,363 The income statements of foreign operations are translated into the reporting currency using a weighted average exchange rate of Financial statements Restricted cash balances (note 15) 7,431 226 – – – 2,654 10,311 conversion. Foreign currency monetary items are translated using the closing rate at the date of the balance sheet. Revenues and costs in currencies other than the functional currency of an operating unit are recorded at the prevailing rate at the date of the transaction. The 1,424,794 226 – – – 2,654 1,427,674 following significant exchange rates applied during the year in relation to US Dollars: 2009 2008 Year ended 31 December 2008 Average rate Closing rate Average rate Closing rate Within 1–2 2–3 3–4 4–5 More than 1 year years years years years 5 years Total Sterling 1.56 1.62 1.85 1.46 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Kuwaiti Dinar 3.47 3.48 3.72 3.62 Financial liabilities Euro 1.40 1.44 1.48 1.39 Floating rates Revolving credit facility (note 24) – 20,000 – – – – 20,000 The following table summarises the impact on the group’s pre-tax profit and equity (due to change in the fair value of monetary assets, Bank overdrafts (note 24) 45,256 – – – – – 45,256 liabilities and derivative instruments) of a reasonably possible change in US dollar exchange rates with respect to different currencies: Term loans (note 24) 9,156 12,186 19,837 25,302 16,242 – 82,723 Pre-tax profit Equity Interest rate collars (note 31) 1,137 – – – – – 1,137 +10% US Dollar –5% US Dollar +10% US Dollar –5% US Dollar Interest rate swap (note 31) 37 – – – – – 37 rate increase rate decrease rate increase rate decrease 55,586 32,186 19,837 25,302 16,242 – 149,153 US$’000 US$’000 US$’000 US$’000 31 December 2009 (10,238) 5,119 7,964 (3,990) Financial assets 31 December 2008 (16,355) 8,177 10,597 (6,135) Floating rates Cash and short-term deposits (note 19) 694,415 – – – – – 694,415 Restricted cash balances (note 15) 2,736 207 – – – 1,692 4,635 697,151 207 – – – 1,692 699,050

Financial liabilities in the above table are disclosed gross of debt acquisition costs and effective rate adjustments of US$5,790,000 (2008: US$5,379,000).

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. The other financial instruments of the group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. 124 125 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

31 Risk management and financial instruments continued Credit risk Foreign currency sensitivity analysis continued The group trades only with recognised, creditworthy third parties. Divisional Risk Review Committees (DRRC) have been set up by the At 31 December 2009, the group had foreign exchange forward contracts designated as cash flow hedges with a fair value gain of Board of Directors to evaluate the creditworthiness of each individual third party at the time of entering into new contracts. Limits have US$32,800,000 (2008: US$10,165,000) in equity as follows: been placed on the approval authority of the DRRC above which the approval of the Board of Directors of the Company is required. Contract value Fair value Net unrealised gain/(loss) Receivable balances are monitored on an ongoing basis with appropriate follow-up action taken where necessary. At 31 December 2009, 2009 2008 2009 2008 2009 2008 the group’s five largest customers accounted for 57.5% of outstanding trade receivables and work in progress (2008: 50.7%). US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Euro currency purchases (sales) 101,909 (41,655) 29,496 7,761 28,430 9,488 With respect to credit risk arising from the other financial assets of the group, which comprise cash and cash equivalents, available-for-sale Sterling currency purchases 38,700 26,747 4,703 (2,585) 4,966 (2,956) financial assets and certain derivative instruments, the group’s exposure to credit risk arises from default of the counterparty, with a Yen currency (sales) purchases (160) 7,465 (942) 1,173 (862) – maximum exposure equal to the carrying amount of these instruments. Kuwaiti Dinars sales (211,034) (90,545) (1,295) 5,160 266 3,633 Liquidity risk 32,800 10,165 The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, revolving credit facilities, project finance and term loans to reduce its exposure to liquidity risk. The maturity profiles of the group’s financial liabilities at The above foreign exchange contracts mature and will affect income between January 2010 and July 2013 (2008: between January 2009 31 December 2009 are as follows: and April 2010). Also included in the net unrealised gains of US$32,800,000 (2008: US$10,165,000) is minority share of gains of US$4,200,000 (2008: US$ nil). Year ended 31 December 2009 Contractual At 31 December 2009, the group had cash and short-term deposits designated as cash flow hedges with a fair value gain of US$1,786,000 6 months 6–12 1–2 2–5 More than undiscounted Carrying or less months years years 5 years cash flows amount (2008: US$2,205,000 loss) as follows: US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Fair value Net unrealised gain/(loss) Financial liabilities 2009 2008 2009 2008 US$’000 US$’000 US$’000 US$’000 Interest-bearing loans and borrowings 31,863 26,208 18,901 46,084 – 123,056 117,266 Euro currency cash and short-term deposits 91,660 269,409 1,163 2,653 Trade and other payables Sterling currency cash and short-term deposits 5,264 15,667 772 (4,858) (excluding advances from customers) 576,264 11,843 – – – 588,107 588,107 Kuwaiti Dinars cash and short-term deposits 19,146 – (149) – Due to related parties 44,496 12,830 – – – 57,326 57,326 1,786 (2,205) Deferred consideration 1,622 – 20,519 11,356 – 33,497 29,060 Derivative instruments 907 906 – – – 1,813 1,813 During 2009, changes in fair value of US$28,043,000 (2008: loss US$25,950,000) relating to these derivative instruments and financial Interest payable 22 – – – – 22 22 assets were taken to equity and US$5,161,000 (2008: US$31,713,000) were recycled from equity into cost of sales in the income statement. Interest payments 816 1,148 2,094 2,291 – 6,349 – The forward points and ineffective portion of the above foreign exchange forward contracts and gains on maturity of undesignated 655,990 52,935 41,514 59,731 – 810,170 793,594 derivatives of US$19,508,000 (2008: US$11,826,000 losses) was recognised in the income statement (note 4b and 4d). Year ended 31 December 2008 Commodity price risk – oil prices Contractual The group is exposed to the impact of changes in oil & gas prices on its revenues and profits generated from sales of crude oil & gas. 6 months 6–12 1–2 2–5 More than undiscounted Carrying The group’s policy is to manage its exposure to the impact of changes in oil & gas prices using derivative instruments, primarily swaps or less months years years 5 years cash flows amount Financial statements and collars. Hedging is only undertaken once sufficiently reliable and regular long-term forecast production data is available. US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Financial liabilities During the year the group entered into various crude oil swaps hedging oil production of 96,000 bbl with maturities ranging from 1 July 2009 Interest-bearing loans and borrowings 49,835 4,577 32,186 61,381 – 147,979 142,600 to 31 December 2010. Three crude oil collars were also contracted hedging 90,000 bbl of oil production with maturities from 1 January 2010 Trade and other payables to 31 December 2010. In addition, six fuel oil swaps were also entered into for hedging gas production of 27,000MT with maturities from (excluding advances from customers) 380,145 56,339 – – – 436,484 436,484 1 October 2009 to 31 December 2010. Due to related parties 469 90 – – – 559 559 Deferred consideration – – 29,454 8,894 – 38,348 32,147 The fair value of oil derivatives at 31 December 2009 was US$1,813,000 liability (2008: US$1,349,000 asset) with a loss recognised in equity of US$1,813,000 (2008: US$1,494,000 gain). Derivative instruments 5,436 808 – – – 6,244 6,244 Interest payable 118 – – – – 118 118 The following table summarises the impact on the group’s pre-tax profit and equity (due to a change in the fair value of oil derivative Interest payments 1,817 1,817 2,799 4,236 – 10,669 – instruments and the underlifting asset/overlifting liability) of a reasonably possible change in the oil price: 437,820 63,631 64,439 74,511 – 640,401 618,152

Pre-tax profit Equity The group uses various funded facilities provided by banks and its own financial assets to fund the above-mentioned financial liabilities. +10 US$/bbl –10 US$/bbl +10 US$/bbl –10 US$/bbl increase decrease increase decrease US$’000 US$’000 US$’000 US$’000 31 December 2009 82 (82) (861) 861 31 December 2008 – – 251 (250) 126 127 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

31 Risk management and financial instruments continued Assets measured at fair value Capital management Year ended 31 December 2009 The group’s policy is to maintain a healthy capital base to sustain future growth and maximise shareholder value. Tier 1 Tier 2 2009 US$’000 US$’000 US$’000 The group seeks to optimise shareholder returns by maintaining a balance between debt and capital and monitors the efficiency of its Financial assets capital structure on a regular basis. The gearing ratio and return on shareholders’ equity is as follows: Available-for-sale financial assets – 539 539 2009 2008 Forward currency contracts – designated as cash flow hedge – 26,891 26,891 US$’000 US$’000 Forward currency contracts – undesignated – 5,070 5,070 Cash and short-term deposits 1,417,363 694,415

Interest-bearing loans and borrowings (A) (117,266) (142,600) Financial liabilities Net cash (B) 1,300,097 551,815 Interest-bearing loans and borrowings – 117,266 117,266 Equity attributable to Petrofac Limited shareholders (C) 890,510 558,822 Oil derivative – 1,813 1,813 Profit for the year attributable to Petrofac Limited shareholders (D) 353,603 264,989 Gross gearing ratio (A/C) 13.2% 25.5% Year ended 31 December 2008 Net gearing ratio (B/C) Net cash Net cash Tier 1 Tier 2 2008 US$’000 US$’000 US$’000 position position Financial assets Shareholders’ return on investment (D/C) 39.7% 47.4% Available-for-sale financial assets 133 433 566 Oil derivative – 1,349 1,349 Fair values of financial assets and liabilities The fair value of the group’s financial instruments and their carrying amounts included within the group’s balance sheet are set out below: Forward currency contracts – 11,509 11,509

Carrying amount Fair value Financial liabilities 2009 2008 2009 2008 Interest-bearing loans and borrowings – 142,600 142,600 US$’000 US$’000 US$’000 US$’000 Interest rate collars – 1,137 1,137 Financial assets Interest rate swap – 37 37 Cash and short-term deposits 1,417,363 694,415 1,417,363 694,415 Forward currency contracts – designated as cash flow hedge – 900 900 Restricted cash 10,311 4,635 10,311 4,635 Forward currency contracts – undesignated – 4,170 4,170 Available-for-sale financial assets 539 566 539 566 Oil derivative – 1,349 – 1,349 32 Events after the reporting period Forward currency contracts – designated as cash flow hedge 26,891 11,509 26,891 11,509 On 14 January 2010 the group acquired 100% of the share capital of Scotvalve Services Limited, a United Kingdom based company Forward currency contracts – undesignated 5,070 – 5,070 – providing servicing and repair of oilfield pressure control equipment, for an initial cash consideration of Sterling 3,000,000 with a further Sterling 2,000,000 of consideration payable on achievement of certain agreed performance targets. Financial liabilities Interest-bearing loans and borrowings 117,266 142,600 117,266 142,600 On 4 March 2010, the Company announced its intention to demerge the Don assets in the North Sea held by Petrofac Energy Developments Financial statements Limited (PEDL) from the Petrofac group and transfer them in to a newly established entity which will hold the combined North Sea assets Deferred consideration 30,178 32,147 30,178 32,147 of PEDL and Lundin North Sea BV. This demerger is planned to be effected via a reorganisation of the Company’s ordinary share capital Interest rate collars – 1,137 – 1,137 such that existing shareholders in Petrofac receive one additional new share in the newly established merged entity for each share held in Interest rate swap – 37 – 37 Petrofac and the new entity intends to pursue a market listing in the near future. Oil derivative 1,813 – 1,813 – Forward currency contracts – designated as cash flow hedge – 900 – 900 Forward currency contracts – undesignated – 4,170 – 4,170

Market values have been used to determine the fair values of available-for-sale financial assets and forward currency contracts. The fair values of interest rate swaps and collars have been calculated by discounting the expected future cash flows at prevailing interest rates. The fair values of long-term interest-bearing loans and borrowings are equivalent to their amortised costs determined as the present value of discounted future cash flows using the effective interest rate. The Company considers that the carrying amounts of trade and other receivables, trade and other payables, other current and non-current financial assets and liabilities approximate their fair values and are therefore excluded from the above table.

Fair value hierarchy The following financial instruments are measured at fair value using the hierarchy below for determination and disclosure of their respective fair values:

Tier 1: Unadjusted quoted prices in active markets for identical financial assets or liabilities Tier 2: Other valuation techniques where the inputs are based on all observation data (directly or indirectly) Tier 3: Other valuation techniques where the inputs are based on unobservable market data 128 129 Petrofac Annual report Petrofac Annual report Notes to the consolidated and accounts 2009 and accounts 2009 financial statements

Notes to the consolidated financial statements continued For the year ended 31 December 2009

33 Subsidiaries and joint ventures Proportion of nominal At 31 December 2009, the group had investments in the following subsidiaries and incorporated joint ventures: value of issued shares controlled by the group Proportion of nominal value of issued shares Name of company Country of incorporation 2009 2008 controlled by the group Trading subsidiaries continued Name of company Country of incorporation 2009 2008 SPD Group Limited British Virgin Islands 51 51 Trading subsidiaries SPD UK Limited Scotland 51 51 Petrofac Inc. USA *100 *100 SPD FZCO United Arab Emirates 51 51 Petrofac International Ltd Jersey *100 *100 SPD LLC United Arab Emirates **25 **25 Petrofac Energy Developments Limited England *100 *100 Petrofac Energy Developments Oceania Limited Cayman Islands 100 100 Petrofac Energy Developments International Limited Jersey *100 *100 PT. Petrofac IKPT International Indonesia 51 51 Petrofac UK Holdings Limited England *100 *100 Petrofac Kazakhstan Limited England 100 100 Petrofac Facilities Management International Limited Jersey *100 *100 Petrofac International (UAE) LLC United Arab Emirates 100 100 Petrofac Services Limited England *100 *100 Petrofac E&C Oman LLC Oman 100 100 Petrofac Services Inc. USA *100 *100 Petrofac International South Africa (Pty) Limited South Africa 100 100 Petrofac Training International Limited Jersey *100 *100 Eclipse Petroleum Technology Limited England 100 100 Petroleum Facilities E & C Limited Jersey *100 *100 Caltec Limited England 100 100 Petrofac Employee Benefit Trust Jersey *100 *100 i Perform Limited Scotland 100 100 Atlantic Resourcing Limited Scotland 100 100 Petrofac FPF1 Limited Jersey 100 – Petrofac Algeria EURL Algeria 100 100 Petrofac Engineering India Private Limited India 100 100 Joint Ventures Petrofac Engineering Services India Private Limited India 100 100 Costain Petrofac Limited England 50 50 Petrofac Engineering Limited England 100 100 Kyrgyz Petroleum Company Kyrgyz Republic 50 50 Petrofac Offshore Management Limited Jersey 100 100 MJVI Sendirian Berhad Brunei 50 50 Petrofac FZE United Arab Emirates 100 100 Spie Capag – Petrofac International Limited Jersey 50 50 Petrofac Facilities Management Group Limited Scotland 100 100 TTE Petrofac Limited Jersey 50 50 Petrofac Facilities Management Limited Scotland 100 100 Petrofac Emirates LLC United Arab Emirates **49 **49 Petrofac International Nigeria Ltd Nigeria 100 100 Petrofac Pars (PJSC) Iran 100 100 Dormant subsidiaries Petrofac Iran (PJSC) Iran 100 100 ASJV Venezuela SA Venezuela 100 100 Plant Asset Management Limited Scotland 100 100 Joint Venture International Limited Scotland 100 100 Petrofac Nuigini Limited Papua New Guinea 100 100 Montrose Park Hotels Limited Scotland 100 100 Financial statements PFMAP Sendirian Berhad Malaysia 100 100 RGIT Ethos Health & Safety Limited Scotland 100 100 Petrofac Caspian Limited Azerbaijan 100 100 Scota Limited Scotland 100 100 Petrofac (Malaysia-PM304) Limited England 100 100 Petrofac Russia Limited England 100 100 Petrofac Training Group Limited Scotland 100 100 Monsoon Shipmanagement Limited Cyprus 100 100 Petrofac Training Holdings Limited Scotland 100 100 Rubicon Response Limited Scotland 100 100 Petrofac Training Limited Scotland 100 100 Petrofac Training Inc. USA 100 100 ** Companies consolidated as subsidiaries on the basis of control. Petrofac Training (Trinidad) Limited Trinidad 100 100 Monsoon Shipmanagement Limited Jersey 100 100 Petrofac E&C International Limited United Arab Emirates 100 100 Petrofac Saudi Arabia Limited Saudi Arabia 100 100 Petrofac Energy Developments (Ohanet) Jersey Limited Jersey 100 100 Petrofac Energy Developments (Ohanet) LLC USA 100 100 PEDL Limited England 100 100 Petrofac (Cyprus) Limited Cyprus 100 100 PKT Technical Services Ltd Russia **50 **50 PKT Training Services Ltd Russia 100 100 Pt PCI Indonesia Indonesia 80 80 Process Control and Instrumentation Services Pte Ltd Singapore 100 100 Process Control and Instrumentation Sendirian Berhad Malaysia 100 100 Sakhalin Technical Training Centre Russia 80 80 Petrofac Norge AS Norway 100 100

* Directly held by Petrofac Limited. ** Companies consolidated as subsidiaries on the basis of control.

130 131 Petrofac Annual report Petrofac Annual report Company and accounts 2009 and accounts 2009 income statement

IndependentNotes to the consolidated auditors’ financial report statements continued Company income statement ToAt 31the December members 2009of Petrofac Limited For the year ended 31 December 2009

We have audited the parent company financial statements of Opinion on financial statements 2009 2008 Petrofac Limited (the ‘Company’) for the year ended 31 December In our opinion the parent company financial statements: Notes US$’000 US$’000 2009 which comprise the company income statement, the company ■ Give a true and fair view, in accordance with International Revenue 3 161,994 98,540 statement of comprehensive income, the company statement of Financial Reporting Standards, of the state of the Company’s General and administration expenses 4 (11,440) (7,839) financial position, the company cash flow statement, the company affairs as at 31 December 2009 and of its profit for the year Other expenses (577) (438) statement of changes in equity and the related notes 1 to 18. The then ended; and Profit before tax and finance income/(costs) 149,977 90,263 financial reporting framework that has been applied in their ■ Have been properly prepared in accordance with the preparation is applicable Jersey law and International Financial requirements of the Companies (Jersey) Law 1991. Finance costs 5 (5,349) (6,504) Reporting Standards (IFRSs). Finance income 5 9,858 8,168 Opinion on other matters Profit before tax 154,486 91,927 This report is made solely to the Company’s members as a body, In our opinion the part of the Directors’ Remuneration Report Income tax expense 6 – (68) in accordance with the provisions of our engagement letter and that has been described as audited has been properly prepared in Profit for the year 154,486 91,859 Article 110 of the Companies (Jersey) Law 1991. Our audit work accordance with the basis of preparation as described therein. has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an Matters on which we are required to report by exception auditor’s report and for no other purpose. To the fullest extent We have nothing to report in respect of the following: permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members Under the Companies (Jersey) Law 1991 we are required to report as a body, for our audit work, for this report, or for the opinions to you if, in our opinion: Company statement of comprehensive income we have formed. ■ Proper accounting records have not been kept by the Company; For the year ended 31 December 2009 ■ The Company’s accounts are not in agreement with the Respective responsibilities of directors and auditors accounting records; or As explained more fully in the Statement of Directors’ Responsibilities ■ We have not received all the information and explanations we 2009 2008 set out on page 87, the Company’s Directors are responsible for the require for our audit. US$’000 US$’000 preparation of the parent company financial statements and for Profit for the year 154,486 91,859 being satisfied that they give a true and fair view. The Directors are Other matter Net (loss)/gains on maturity of cash flow hedges also responsible for the preparation of the Directors’ Remuneration We have reported separately on the group financial statements recycled in the year (537) 7 Report, which they have chosen to prepare as if the Company was of Petrofac Limited for the year ended 31 December 2009. Net changes in fair value of derivatives and required to comply with relevant requirements of both the UK financial assets designated as cash flow hedges 962 (376) Companies Act 2006 (and Regulations there under) and the Listing Ernst & Young LLP Other comprehensive income/(loss) 425 (369) Rules of the Financial Services Authority. Our responsibility is to London audit the parent company financial statements in accordance with 5 March 2010 Total comprehensive income for the year 154,911 91,490 applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing The attached notes 1 to 18 form part of these Company financial statements. Practices Board’s (APBs) Ethical Standards for Auditors. In addition

the Company has also instructed us to review whether the section Financial statements of the Directors’ Remuneration Report that has been described as audited has been properly prepared in accordance with the basis of preparation described therein.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. 132 133 Petrofac Annual report Petrofac Annual report Company and accounts 2009 and accounts 2009 cash flow statement

Company statement of financial position Company cash flow statement At 31 December 2009 For the year ended 31 December 2009

2009 2008 2009 2008 Notes US$’000 US$’000 Notes US$’000 US$’000 Assets Operating activities Non-current assets Profit before tax 154,486 91,927 Property, plant and equipment 27 41 Adjustments for: Investment in subsidiaries 8 265,599 214,088 Depreciation 4 27 42 Long-term loan receivable from a subsidiary 9 – 219,491 Share-based payments 13 912 588 265,626 433,620 Difference between other long-term employment benefits paid and amounts recognised in the income statement 32 51 Current assets Net finance income 5 (4,509) (1,644) Trade and other receivables 189 249 Other non-cash items, net 1,843 (2,060) Amounts due from subsidiaries 10 379,939 19,937 Operating profit before working capital changes 152,791 88,904 Cash and short-term deposits 11 64,387 14,516 Trade and other receivables 60 40 444,515 34,702 Amounts due from subsidiaries (109,097) 5,953 Total assets 710,141 468,322 Trade and other payables 319 (94) Amounts due to subsidiaries 160,583 210,593 Equity and liabilities Current financial liabilities (433) 417 Equity attributable to Petrofac Limited shareholders 204,223 305,813 Share capital 17 8,638 8,636 Share premium 69,712 68,203 Other non-current items, net 307 (425) Capital redemption reserve 10,881 10,881 Cash generated from operations 204,530 305,388 Interest paid (1,443) (9,228) Treasury shares 12 (56,285) (69,333) Income taxes paid, net – (68) Share-based payments reserve 13 43,790 32,202 Net cash flows generated from operating activities 203,087 296,092 Net unrealised losses on derivatives 15 – (425)

Retained earnings 18 119,103 61,577 Investing activities Total equity 195,839 111,741 Purchase of property, plant and equipment (13) (31) Investment in subsidiaries (50,000) (23,569) Non-current liabilities Long-term loans made to a subsidiary – (183,579) Interest-bearing loans and borrowings 14 39,008 65,464 Long-term employee benefit provisions 176 144 Interest received 187 1,523 Other financial liabilities – 118 Net cash flows used in investing activities (49,826) (205,656)

39,184 65,726 Financial statements Financing activities Current liabilities Proceeds from interest-bearing loans and borrowings – 25,000 Trade and other payables 811 492 Repayment of interest-bearing loans and borrowings (5,121) (1,312) Amounts due to subsidiaries 10 448,048 284,930 Treasury shares purchased 12 – (42,500) Interest-bearing loans and borrowings 14 26,259 5,000 Equity dividends paid (98,995) (64,135) Other financial liabilities – 433 Net cash flows used in financing activities (104,116) (82,947) 475,118 290,855

Total liabilities 514,302 356,581 Net increase in cash and cash equivalents 49,145 7,489 Total equity and liabilities 710,141 468,322 Net foreign exchange difference on cash and cash equivalents 726 (1,379) Cash and cash equivalents at 1 January 14,516 8,406 The financial statements on pages 131 to 142 were approved by the Board of Directors on 5 March 2010 and signed on its behalf by Keith Roberts – Chief Financial Officer. Cash and cash equivalents at 31 December 11 64,387 14,516

The attached notes 1 to 18 form part of these Company financial statements. The attached notes 1 to 18 form part of these Company financial statements. 134 135 Petrofac Annual report Petrofac Annual report Notes to the Company and accounts 2009 and accounts 2009 financial statements

Company statement of changes in equity Notes to the Company financial statements For the year ended 31 December 2009 For the year ended 31 December 2009

Attributable to shareholders of Petrofac Limited 1 Corporate information Share-based payment transactions Net unrealised The consolidated financial statements of Petrofac Limited (the Employees (including Directors) of the group receive remuneration Issued Capital Share-based gains/ Company) and Petrofac Employee Benefit Trust together referred in the form of share-based payment transactions, whereby share Share redemption Treasury* payment (losses) on Retained Total employees render services in exchange for shares or rights over capital premium reserve shares reserve derivatives earnings equity to as the Company financial statements for the year ended US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 31 December 2009 were authorised for issue in accordance shares (‘equity-settled transactions’). (note 17) (note 12) (note 13) (note 18) with a resolution of the Directors on 5 March 2010. Balance at 1 January 2008 8,636 68,203 10,881 (29,842) 16,161 (56) 34,418 108,401 Equity-settled transactions Net profit for the year – – – – – – 91,859 91,859 Petrofac Limited is a limited liability company registered in The cost of equity-settled transactions with employees is Jersey under the Companies (Jersey) Law 1991 and is the holding measured by reference to the fair value at the date on which they Other comprehensive company for the international group of Petrofac subsidiaries are granted. In valuing equity-settled transactions, no account is income/(expense) – – – – – (369) – (369) (together ‘the group’). The group’s principal activity is the taken of any service or performance conditions, other than Total comprehensive provision of facilities solutions to the oil & gas production and conditions linked to the price of the shares of Petrofac Limited income/(expense) – – – – – (369) 91,859 91,490 processing industry. (‘market conditions’), if applicable. Share-based payments charge (note13) – – – – 588 – – 588 2 Summary of significant accounting policies The cost of equity-settled transactions is recognised, together with Shares vested during the year – – – 3,009 (3,009) – – – Basis of preparation a corresponding increase in equity, over the period in which the Treasury shares purchased The separate financial statements have been prepared on a relevant employees become fully entitled to the award (the ‘vesting (note 12) – – – (42,500) – – – (42,500) historical cost basis, except for derivative financial instruments that period’). The cumulative expense recognised for equity-settled have been measured at fair value. The functional and presentation transactions at each reporting date until the vesting date reflects Transfer to reserve for currency of the separate financial statements is United States the extent to which the vesting period has expired and the group’s share-based payments Dollars and all values in the separate financial statements are best estimate of the number of equity instruments that will (note 13) – – – – 18,462 – – 18,462 rounded to the nearest thousand (US$’000) except where ultimately vest. The income statement charge or credit for a period Dividends (note 7) – – – – – – (64,700) (64,700) otherwise stated. represents the movement in cumulative expense recognised as Balance at 1 January 2009 8,636 68,203 10,881 (69,333) 32,202 (425) 61,577 111,741 at the beginning and end of that period. Net profit for the year – – – – – – 154,486 154,486 Statement of compliance Other comprehensive income – – – – – 425 – 425 The separate financial statements have been prepared in No expense is recognised for awards that do not ultimately vest, accordance with International Financial Reporting Standards except for awards where vesting is conditional upon a market or Total comprehensive income – – – – – 425 154,486 154,911 (IFRS) and applicable requirements of Jersey law. non-vesting condition, which are treated as vesting irrespective Shares issued as payment of of whether or not the market or non-vesting condition is satisfied, deferred consideration 2 1,509 – – – – – 1,511 Investments in subsidiaries provided that all other performance conditions are satisfied. Equity Share-based payments charge Investments in subsidiaries are stated at cost less any provision awards cancelled are treated as vesting immediately on the date of (note 13) – – – – 912 – – 912 for impairment. cancellation, and any expense not recognised for the award at that Shares vested during the year – – – 13,048 (12,617) – (431) – date is recognised in the income statement. Transfer to reserve for Long-term loan receivables from subsidiaries share-based payments Long-term loan receivables from subsidiaries are initially stated at The Company operates a number of share award schemes on (note 13) – – – – 23,293 – – 23,293 fair value. After initial recognition, they are subsequently measured behalf of the employees of the group which are described in detail Financial statements at amortised cost using the effective interest rate method. in note 22 of the consolidated financial statements of the group. Dividends (note 7) – – – – – – (96,529) (96,529) Balance at 31 December 2009 8,638 69,712 10,881 (56,285) 43,790 – 119,103 195,839 Due from/due to subsidiaries The reserve for share-based payments is used to record the value * Shares held by Petrofac Employee Benefit Trust. Due from/due to subsidiaries are both interest bearing and of equity-settled share-based payments awarded to employees non-interest bearing short-term funding to and from subsidiaries. and transfers out of this reserve are made upon vesting of the The attached notes 1 to 18 form part of these Company financial statements. These are recognised at the fair value of consideration received/ original share awards. The share-based payments charges paid, less any provision for impairment. pertaining to fellow group companies employees is reimbursed by them to the Company. Cash and cash equivalents Cash and cash equivalents consist of cash at bank and in hand Long-term employee benefit provisions and short-term deposits with an original maturity of three months Labour laws in certain countries in which the Company operates or less. For the purpose of the cash flow statement, cash and require employers to provide for other long-term employment cash equivalents consists of cash and cash equivalents as benefits. These benefits are payable to employees at the end defined above, net of any outstanding bank overdrafts. of their period of employment. The provision for these long-term benefits is calculated based on the employees’ last drawn salary Interest-bearing loans and borrowings at the balance sheet date and length of service, subject to the All interest-bearing loans and borrowings are initially recognised completion of a minimum service period in accordance with the at the fair value of the consideration received net of issue costs local labour laws of the jurisdictions in which the Company directly attributable to the borrowing. operates.

After initial recognition, interest-bearing loans and borrowings Revenues are subsequently measured at amortised cost using the effective Revenues comprise dividends from subsidiaries which are interest rate method. Amortised cost is calculated by taking recognised when the right to receive payment is established. into account any issue costs, and any discount or premium on settlement. 136 137 Petrofac Annual report Petrofac Annual report Notes to the Company and accounts 2009 and accounts 2009 financial statements

Notes to the Company financial statements continued For the year ended 31 December 2009

3 Revenues 8 Investments in subsidiaries 2009 2008 2009 2008 US$’000 US$’000 US$’000 US$’000 Dividend income from subsidiaries 161,994 98,540 At 1 January 214,088 172,057 Investment in Petrofac UK Holdings Limited 1,511 42,031 4 General and administration expenses Investment in Petrofac Energy Developments Limited 50,000 – 2009 2008 US$’000 US$’000 As at 31 December 265,599 214,088 Staff costs 7,595 5,170 Depreciation 27 42 The Investment in Petrofac Energy Developments Limited comprises of additional loans made for its investments in Don assets. Other operating expenses 3,818 2,627 At 31 December 2009, the Company had investments in the following subsidiaries: 11,440 7,839 Proportion of nominal value of issued shares controlled by the Company Included in other operating expenses above are auditors’ remuneration of US$67,000 (2008: US$68,000) related to the fee for the audit Name of company Country of incorporation 2009 2008 of the parent company financial statements. It excludes fees in relation to the audit of the group financial statements, which are borne by Petrofac Services Limited. Trading subsidiaries Petrofac Inc. USA 100 100 5 Finance costs/(income) Petrofac International Ltd Jersey 100 100 2009 2008 Petrofac Energy Developments Limited England 100 100 US$’000 US$’000 Petrofac Energy Developments International Limited Jersey 100 100 Interest payable: Long-term borrowings 1,443 1,356 Petrofac UK Holdings Limited England 100 100 On amounts due to subsidiaries 3,906 5,141 Petrofac Facilities Management International Limited Jersey 100 100 Expense of time value portion of derivative financial instrument – 7 Petrofac Services Limited England 100 100 Total finance cost 5,349 6,504 Petrofac Services Inc. USA 100 100 Petrofac Training International Limited Jersey 100 100 Interest receivable: Petroleum Facilities E & C Limited Jersey 100 100 Bank interest receivable (55) (525) On amounts due from subsidiaries (9,803) (7,643) 9 Long-term loan receivable from a subsidiary Total finance income (9,858) (8,168) Long-term loan receivable from a subsidiary at 31 December 2008 represents a loan made to one of the Company’s subsidiaries, Petrofac Energy Developments International Limited, for the purpose of its appraisal of and development activities on its oil & gas assets. The loan carried an interest rate of US LIBOR + 2.0% margin. 6 Income tax 2009 2008 US$’000 US$’000 10 Amounts due from/due to subsidiaries Current income tax Amounts due from/due to subsidiaries comprise both interest and non-interest bearing short-term loans provided to/received from Financial statements Withholding tax on loan interest income from subsidiaries – 68 subsidiaries listed in note 8 above. 11 Cash and short-term deposits The income tax expense in 2008 arose due to irrecoverable withholding tax deducted on payments to the Company. As explained in detail 2009 2008 in note 6 of the consolidated financial statements of the group the Company has no income tax expense in Jersey. In addition, as any US$’000 US$’000 deferred tax on temporary differences would be recognised at a 0% tax rate there are no deferred tax assets or liabilities for the Company. Cash at bank and in hand 4,857 2,284 Short-term deposits 59,530 12,232 7 Dividends paid 2009 2008 Total cash and bank balances (cash and cash equivalents) 64,387 14,516 US$’000 US$’000 Declared and paid during the year Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of Equity dividends on ordinary shares: between one day and one month depending on the immediate cash requirements of the group, and earn interest at respective short-term Final dividend for 2007: 11.50 cents per share – 39,164 deposit rates. The fair value of cash and bank balances is US$64,387,000 (2008: US$14,516,000). Interim dividend 2008: 7.50 cents per share – 25,536 Final dividend for 2008: 17.90 cents per share 60,332 – 12 Treasury shares For the purpose of making awards under its employee share schemes, the Company acquires its own shares which are held by the Interim dividend 2009: 10.70 cents per share 36,197 – Petrofac Employee Benefit Trust. All these shares have been classified in the balance sheet as treasury shares within equity. 96,529 64,700 The movements in total treasury shares are shown below: 2009 2008 2009 2008 US$’000 US$’000 Number US$’000 Number US$’000 Proposed for approval at AGM (not recognised as a liability as at 31 December) At 1 January 9,540,306 69,333 4,052,024 29,842 Equity dividends on ordinary shares Final dividend for 2009: 25.10 cents per share (2008: 11.50 cents per share) 86,729 61,831 Acquired during the year – – 5,854,194 42,500 Vested during the year (2,329,341) (13,048) (365,912) (3,009) At 31 December 7,210,965 56,285 9,540,306 69,333

As at 31 December 2009 5,504,819 (2008: 5,504,819) of the above shares were held by Lehman Brothers in a client custody account which is now being managed by their appointed Administrator. The Company anticipates that the Administrators will release these assets in the near future under a signed Claim Resolution Agreement approved by the creditors.

Included in the above treasury shares are 274,938 (2008: 274,938) shares held in relation to the acquisition of SPD Group Limited in 2007. 138 139 Petrofac Annual report Petrofac Annual report Notes to the Company and accounts 2009 and accounts 2009 financial statements

Notes to the Company financial statements continued For the year ended 31 December 2009

13 Share-based payments reserve The other main risks besides interest rate are foreign currency risk, credit risk and liquidity risk and the policies relating to these risks are Share-based payment plan information is disclosed in note 22 of the consolidated financial statements of the group. discussed in detail below:

During the year, a share-based payment scheme charge of US$912,000 (2008: US$588,000) was recognised by the Company in respect Interest rate risk of its own employees’ time spent on shareholder related services. Interest rate risk arises from the possibility that changes in interest rates will affect the value of the Company’s interest-bearing financial liabilities and assets. The Company does not hedge its exposure on its interest bearing funding to/from subsidiaries. The transfer during the year into share-based payment reserve disclosed in the statement of changes in equity of US$23,293,000 (2008: US$18,462,000) represents amounts collected from subsidiaries in respect of their employees share-based payment transactions. Interest rate sensitivity analysis The impact on the Company’s pre-tax profit and equity due to a reasonably possible change in interest rates is demonstrated in the 14 Interest-bearing loans and borrowings table below. The analysis assumes that all other variables remain constant. The Company had the following interest-bearing loans and borrowings outstanding: Pre-tax profit Equity 100 basis 100 basis 100 basis 100 basis 31 December 2009 31 December 2008 Effective 2009 2008 point increase point decrease point increase point decrease Actual interest rate % Actual interest rate % interest rate % Maturity US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Current 31 December 2009 (823) 823 – – Revolving credit facility (iii) US LIBOR US LIBOR US LIBOR 2010 20,000 – 31 December 2008 (521) 521 (210) (695) + 1.50% + 0.875% + 1.50% Current portion of (i) US LIBOR US LIBOR 3.71% – 5,296 5,000 The following table reflects the maturity profile of interest-bearing financial liabilities and assets, excluding interest-bearing subsidiary related term loan + 0.875% + 0.875% (2008: 4.18%) financial assets and liabilities: Current portion of (ii) US/UK LIBOR US/UK LIBOR 2.65% to 3.44% – 963 – term loan + 0.875% + 0.875% (2008: 3.74% Year ended 31 December 2009 to 5.02%) Within 1–2 2–3 3–4 4–5 More than 1 year years years years years 5 years Total 26,259 5,000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Financial liabilities Non-current Floating rates Term loan (ii) US/UK LIBOR US/UK LIBOR 2.65% to 3.44% 2013 18,291 18,720 Revolving credit facility (note 14) 20,000 – – – – – 20,000 + 0.875% + 0.875% (2008: 3.74% Term loan (note 14) 6,259 11,688 15,567 14,617 – – 48,131 to 5.02%) Amount due to subsidiaries (interest bearing) – 448,048 – – – – 448,048 Revolving credit facility (iii) – US LIBOR (2008: 3.11%) 2010 – 20,000 26,259 459,736 15,567 14,617 – – 516,179 + 0.875%

Term loan (i) US LIBOR US LIBOR 3.71% 2010-2013 23,581 28,998 Financial assets + 0.875% + 0.875% (2008: 4.18%) Floating rates 41,872 67,718 Cash and short-term deposits (note 11) 64,387 – – – – – 64,387 Less: Amount due from subsidiaries (interest bearing) 358,693 – – – – – 358,693 Debt acquisition costs net of accumulated Financial statements 423,080 – – – – – 423,080 amortisation and effective interest rate adjustments (2,864) (2,254) Year ended 31 December 2008 39,008 65,464 Within 1–2 2–3 3–4 4–5 More than 1 year years years years years 5 years Total Details of the Company’s interest-bearing loans and borrowings are as follows: US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Financial liabilities (i) Term loan Floating rates This term loan at 31 December 2009 comprised drawings of US$28,877,000 (2008: US$33,998,000) repayable over a period of four years Revolving credit facility (note 14) – 20,000 – – – – 20,000 ending 30 September 2013. Term loan (note 14) 5,000 6,561 12,025 15,927 13,205 – 52,718 Amount due to subsidiaries (interest bearing) – 284,930 – – – – 284,930 (ii) Term loan Interest rate collar 432 – – – – – 432 This term loan is to be repaid over a period of three years ending 30 September 2013. 5,432 311,491 12,025 15,927 13,205 – 358,080 (iii) Revolving credit facility This facility is repayable on 31 December 2010. Financial assets Floating rates 15 Risk management and financial instruments Cash and short-term deposits (note 11) 14,516 – – – – – 14,516 Risk management objectives and policies Amount due from subsidiaries (interest bearing) 10,900 – – – – – 10,900 The Company’s principal financial assets and liabilities, other than derivatives, are amounts due from and due to subsidiaries, cash and Long-term loan receivable from a subsidiary – – – – – 219,491 219,491 short-term deposits and interest-bearing loans and borrowings. 25,416 – – – – 219,491 244,907 The Company’s activities expose it to various financial risks particularly associated with interest rate risks on its external variable rate loans and borrowings which are addressed by using derivative instruments to hedge this exposure. The Company has a policy not to enter into Financial liabilities in the above table are disclosed gross of debt acquisition costs and effective interest rate adjustments of US$2,864,000 speculative trading of financial derivatives. (2008: US$2,254,000).

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. 140 141 Petrofac Annual report Petrofac Annual report Notes to the Company and accounts 2009 and accounts 2009 financial statements

Notes to the Company financial statements continued For the year ended 31 December 2009

15 Risk management and financial instruments continued Capital management Derivative instrument designated as cash flow hedge The Company’s gearing ratio is as follows: There were no outstanding interest rate derivatives designated as cash flow hedges at 31 December 2009. At 31 December 2008, 2009 2008 the Company held the following derivative instrument, designated as a cash flow hedge in relation to floating rate interest-bearing loans US$’000 US$’000 and borrowings: Cash and short-term deposits 64,387 14,516 Fair value of asset/(liability) Interest-bearing loans and borrowings (A) (65,267) (70,464) Nominal amount 2009 2008 Net debt (B) (880) (55,948) Instrument (US$ equivalent) Period to maturity Date commenced US$’000 US$’000 Total equity (C) 195,839 111,741 US LIBOR interest rate collar 34,138,000 Matured 31 December 2007 – (432) Gross gearing ratio (A/C) 33.3% 63.1% During 2009 an interest expense of US$ nil (2008: US$7,000) was recognised as the time value portion and US$ nil (2008: US$425,000) Net gearing ratio (B/C) 0.4% 50.0% was classified as equity being the intrinsic value portion of the above derivative financial instrument. Fair values of financial assets and liabilities Foreign currency risk The fair value of the Company’s financial instruments and their carrying amounts included within the Company’s balance sheet are set Almost all of the financial assets and liabilities of the Company are denominated in US Dollars. The foreign currency exposure is limited to out below: Sterling 3,300,000 (US$5,354,000) of its interest-bearing loans and borrowings. Carrying amount Fair value 2009 2008 2009 2008 The following table summarises the impact on the Company’s pre-tax profit and equity (due to change in the fair value of monetary assets, US$’000 US$’000 US$’000 US$’000 liabilities and derivative instruments) of a reasonably possible change in US Dollar exchange rates with respect to different currencies: Financial assets Cash and short-term deposits 64,387 14,516 64,387 14,516 Pre-tax profit Equity Long-term receivable from a subsidiary – 219,491 – 219,491 +10% US Dollar –5% US Dollar +10% US Dollar –5% US Dollar rate increase rate decrease rate increase rate decrease US$’000 US$’000 US$’000 US$’000 Financial liabilities Interest-bearing loans and borrowings 65,267 70,464 65,267 70,464 31 December 2009 (3,821) 1,911 – – Interest rate collar – 432 – 432 31 December 2008 (425) 212 – –

The fair values of interest rate collars have been calculated by discounting the expected future cash flows at prevailing interest rates. The fair Credit risk values of long-term interest-bearing loans and borrowings and long-term receivable from a subsidiary are equivalent to amortised costs The Company’s principal financial assets are cash and short-term deposits and amounts due from subsidiaries. determined as the present value of discounted future cash flows using the effective interest rate. The Company considers that the carrying amounts of trade and other receivables, amounts due from/due to subsidiaries, trade and other payables, other current financial liabilities The Company manages its credit risk in relation to cash and short-term deposits by only depositing cash with financial institutions that have approximate their fair values and are therefore excluded from the above table. high credit ratings provided by international credit rating agencies. Fair value hierarchy Liquidity risk The following financial instruments are measured at fair value using the hierarchy below for determination and disclosure of their The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of term loans and revolving respective fair values: credit facilities to reduce its exposure to liquidity risk. Financial statements Tier 1: Unadjusted quoted prices in active markets for identical financial assets or liabilities The maturity profiles of the Company’s financial liabilities at 31 December 2009 are as follows: Tier 2: Other valuation techniques where the inputs are based on all observation data (directly or indirectly) Tier 3: Other valuation techniques where the inputs are based on unobservable market data Year ended 31 December 2009 Contractual 6 months 6–12 1–2 2–5 More than undiscounted Carrying Assets measured at fair value or less months years years 5 years cash flows amount Tier 2 2009 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Financial liabilities Financial liabilities Interest-bearing loans and borrowings 2,649 23,611 11,688 30,183 – 68,131 65,267 Interest-bearing loans and borrowings 65,267 65,267 Trade and other payables 811 – – – – 811 811 Tier 2 2008 Amounts due to subsidiaries – 448,048 – – – 448,048 448,048 US$’000 US$’000 Interest payments 563 798 1,273 1,472 – 4,106 – Financial assets 4,023 472,457 12,961 31,655 – 521,096 514,126 Long-term receivable from a subsidiary 219,491 219,491

Year ended 31 December 2008 Financial liabilities Contractual 6 months 6–12 1–2 2–5 More than undiscounted Carrying Interest-bearing loans and borrowings 70,464 70,464 or less months years years 5 years cash flows amount Interest rate collars 432 432 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Financial liabilities Interest-bearing loans and borrowings 2,500 2,500 26,561 41,157 – 72,718 70,464 Trade and other payables 492 – – – – 492 492 Amounts due to subsidiaries – 284,930 – – – 284,930 284,930 Derivative instruments – 432 – – – 432 432 Interest payable 1 – – – – 1 1 Interest payments 3,576 3,578 1,796 2,559 – 11,509 – 6,569 291,440 28,357 43,716 – 370,082 356,319

The Company uses various funded facilities provided by banks and its own financial assets to fund the above-mentioned financial liabilities. 142 143 Petrofac Annual report Petrofac Annual report Oil & gas reserves and accounts 2009 and accounts 2009 (unaudited)

Notes to the Company financial statements continued Oil & gas reserves (unaudited) For the year ended 31 December 2009 At 31 December 2009

16 Related party transactions South The Company’s related parties consist of its subsidiaries and the transactions and amounts due to/due from them are either of a funding Europe Africa East Asia Total or investing nature (note 9 & 10). The Company is recharged a portion of the key management personnel cost by one of its subsidiaries. Oil & NGLs Oil & NGLs Gas Oil & NGLs Oil & NGLs Gas Oil equivalent The amount recharged during the year was US$2,182,000 (2008: US$1,576,000). For further details of the full amount of key management mmbbl mmbbl bcf mmbbl mmbbl bcf mmboe personnel costs see Directors’ Remuneration Report on pages 84 to 86. Proven reserves At 1 January 2009 17 Share capital Developed – 2.4 18.7 3.5 5.9 18.7 9.1 The movements in share capital are disclosed in note 20 to the consolidated financial statements of the group. Undeveloped 12.2 – 0.1 – 12.2 0.1 12.2 Proven 12.2 2.4 18.8 3.5 18.1 18.8 21.3 18 Retained earnings US$’000 Changes during the year: At 1 January 2008 34,418 Revisions (4.4) (0.2) 5.3 1.3 (3.3) 5.3 (2.3) Net profit for the year 91,859 Additions 6.5 – – – 6.5 – 6.5 Dividends paid (note 7) (64,700) Acquisitions – – – – – – – At 1 January 2009 61,577 Production (1.2) (0.8) (4.3) (1.2) (3.2) (4.3) (4.0) Net profit for the year 154,486 Dividend shares vested during the year (431) At 31 December 2009 Dividends paid (note 7) (96,529) Developed 3.4 1.4 19.3 3.6 8.4 19.3 11.8 As at 31 December 2009 119,103 Undeveloped 9.7 – 0.5 – 9.7 0.5 9.7 Proven 13.1 1.4 19.8 3.6 18.1 19.8 21.5

Probable reserves At 1 January 2009 10.0 – 5.0 1.7 11.7 5.0 12.6 Changes during the year: Revisions (6.7) – 1.2 (1.2) (7.9) 1.2 (7.6) Additions 3.1 – – – 3.1 – 3.1 Acquisitions – – – – – – – Production – – – – – – – At 31 December 2009 6.4 – 6.2 0.5 6.9 6.2 8.1

Total proven & probable reserves At 1 January 2009 22.2 2.4 23.8 5.2 29.8 23.8 33.9

Changes during the year: Financial statements Revisions (11.1) (0.2) 6.5 0.1 (11.2) 6.5 (9.9) Additions 9.6 – – – 9.6 – 9.6 Acquisitions – – – – – – – Production (1.2) (0.8) (4.3) (1.2) (3.2) (4.3) (4.0) At 31 December 2009 19.5 1.4 26.0 4.1 25.0 26.0 29.6

Notes ■ These estimates of reserves were prepared by the group’s engineers and audited by a competent, independent third party based on the guidelines of the Petroleum Resources Management System (sponsored by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers). ■ The reserves presented are the net entitlement volumes attributable to the Company, under the terms of relevant production sharing contracts and assuming future oil prices equivalent to US$70 per barrel (Brent). ■ For the purpose of calculating oil equivalent total reserves, volumes of natural gas have been converted to oil equivalent volumes at the rate of 5,800 standard cubic feet of gas per barrel of oil.

Glossary mmbbl – million barrels bcf – billion cubic feet mmbbl – million barrels of oil equivalent NGLs – natural gas liquids 144 Petrofac Annual report and accounts 2009

Shareholder information At 31 December 2009

Petrofac shares are traded on the London Stock Exchange using code ‘PFC.L’.

Registrar Joint Brokers Capita Registrars (Jersey) Limited Goldman Sachs 12 Castle Street Peterborough Court St Helier 113 Fleet Street Jersey JE2 3RT London EC4A 2BB

UK Transfer Agent JP Morgan Cazenove Capita Registrars 20 Moorgate The Registry London EC2R 6DA 34 Beckenham Road Beckenham Auditors Kent BR3 4TU Ernst & Young LLP 1 More London Place Company Secretary and registered office London SE1 2AF Ogier Corporate Services (Jersey) Limited Whiteley Chambers Corporate and Financial PR Don Street Tulchan Communications Group St Helier 85 Fleet Street Jersey JE4 9WG London EC4Y 1AE

Legal Advisers to the Company As to English Law Freshfields Bruckhaus Deringer LLP 65 Fleet Street London EC4Y 1HS

As to Jersey Law Ogier Whiteley Chambers Don Street St Helier Jersey JE4 9WG

Financial Calendar 13 May 2010 Annual General Meeting 21 May 2010 Final dividend payment 23 August 2010 Interim results announcement October 2010 Interim dividend payment

Dates correct at time of print, but subject to change

The group’s investor relations website can be found through www.petrofac.com Designed and produced by ConranDesignGroup +44 (0)20 7284 5200

Photography by Sam Robinson. FPF1 image on page 15 courtesy of John Borowski / Hess. Images on page 45 courtesy of BP.

This Report is printed on Revive 100 Pure White Silk paper and Revive Pure White Uncoated paper and has been independently certified on behalf of the Forest Stewardship Council (FSC). The inks used are all vegetable oil based.

Printed at St Ives Westerham Press Ltd, ISO14001, FSC certified and CarbonNeutral®

…in the detail Petrofac Annual report and accounts 2009 accounts and report Annual Petrofac

Petrofac Services Limited Annual report 117 Jermyn Street and accounts 2009 London SW1Y 6HH United Kingdom

T +44 20 7811 4900 F +44 20 7811 4901 www.petrofac.com

The difference is…